Using Land Draft Report

'5$)7
Draft report
June 2015
Using land
for housing
The Productivity Commission aims to

provide insightful, well-informed and
accessible advice that leads to the best
possible improvement in the wellbeing of
New Zealanders. We wish to gather ideas,
opinions, evidence and information to
ensure that our inquiries are well-informed
and relevant. The Commission is seeking
submissions on the draft findings and
recommendations and the questions
contained in this report by 4 August 2015.
Using land for housing

Draft Report
June 2015
ii
DRAFT | Using land for housing
The New Zealand Productivity Commission Te Kmihana Whai Hua o Aotearoa 1

Date:
June 2015
How to cite this report: New Zealand Productivity Commission. (2015). Using land for housing: Draft report.
Wellington: New Zealand Productivity Commission. Available from www.productivity.govt.nz/inquirycontent/using-land
The Commission an independent Crown entity completes in-depth inquiry reports on topics that the
Government selects, carries out productivity-related research and promotes understanding of productivity
issues. The Commission aims to provide insightful, well informed and accessible advice that leads to the best
possible improvement in the wellbeing of New Zealanders. The Commissions work is guided by the
New Zealand Productivity Commission Act 2010.
To find out more about the Commission, visit www.productivity.govt.nz, or call +64 4 903 5150.
Disclaimer
Some of the results in this report are created from Statistics New Zealand Longitudinal Business Database and
Statistics New Zealand Survey of Family, Income and Employment. Results based on these data are not official
statistics, they have been created for research purposes from the Integrated Data Infrastructure (IDI), managed by
Statistics New Zealand.
The opinions, findings, recommendations, and conclusions expressed in this report are those of the New Zealand
Productivity Commission, not Statistics New Zealand.
Access to the anonymised data used in this study was provided by Statistics New Zealand in accordance with
security and confidentiality provisions of the Statistics Act 1975. Only people authorised by the Statistics Act 1975
are allowed to see data about a particular person, household, business, or organisation, and the results in this
report have been confidentialised to protect these groups from identification.
Careful consideration has been given to the privacy, security, and confidentiality issues associated with using
administrative and survey data in the IDI. Further detail can be found in the Privacy impact assessment for the
Integrated Data Infrastructure available from www.stats.govt.nz.
The results are based in part on tax data supplied by Inland Revenue to Statistics New Zealand under the Tax
Administration Act 1994. This tax data must be used only for statistical purposes, and no individual information
may be published or disclosed in any other form, or provided to Inland Revenue for administrative or regulatory
purposes.
Any person who has had access to the unit record data has certified that they have been shown, have read, and
have understood section 81 of the Tax Administration Act 1994, which relates to secrecy. Any discussion of data
limitations or weaknesses is in the context of using the IDI for statistical purposes, and is not related to the datas
ability to support Inland Revenues core operational requirements.
The contents of this report must not be construed as legal advice. The Commission does not accept any
responsibility or liability for an action taken as a result of reading, or reliance placed because of having read any
part, or all, of the information in this report. The Commission does not accept any responsibility or liability for any
error, inadequacy, deficiency, flaw in or omission from this report.
ISBN: 978-0-478-44017-1 (print)

1
ISBN: 978-0-478-44018-8 (online)
The Commission that pursues abundance for New Zealand.
Terms of reference
Terms of reference
PRODUCTIVITY COMMISSION INQUIRY INTO THE SUPPLY AND
DEVELOPMENT CAPACITY OF LAND FOR HOUSING IN NEW ZEALAND
CITIES
Issued by the Minister of Finance, the Minister of Housing, the Minister of Local Government, and the
Minister for the Environment (the referring Ministers).
Pursuant to sections 9 and 11 of the New Zealand Productivity Commission Act 2010, we hereby request that
the Productivity Commission [the Commission] undertake an inquiry to assess and identify improvements in
local and regional authorities land use regulation, planning, and development systems. These systems
should be reviewed with respect to how they deliver an adequate supply of development capacity for
housing.
Context
Ensuring that rapidly growing cities can efficiently supply and use land to house people in an affordable
manner has the potential to make a significant difference to New Zealand households living standards and
support national productivity and macroeconomic stability.
The Productivity Commissions 2012 report Housing affordability, identified planning, land use regulation
and the systems for supply of infrastructure as playing a critical role in managing the growth in cities. The
Commissions 2012 report, and its 2013 Local government report, highlighted variability in regulatory
practices across local and regional authorities. This inquiry seeks to explore and understand the practices of
local and regional authorities in more detail, with the aim of improving overall performance, given that, over
the next several decades, the population in several major cities will grow significantly.
Local and regional authority planning systems aim to balance the competing social, environmental and
economic impacts of development. Planning systems and land regulations include the regulatory
requirements imposed by central, local, and regional government and the actions of regulators.
Development systems include the institutions, plans, policies, processes and appeal rights on the use of
land, including changes to its use.
Planning and development systems affect the potential uses of land with the intention of delivering social
benefits to the local community. Delivering these social benefits will have a significant influence on the cost,
availability and development capacity of land for new housing.
The past decade has seen a large increase in New Zealand house prices. The reasons for this increase are
multi-faceted. One important factor has been the approach to land use planning and regulation.
Over time the range of objectives of local authority planning systems has increased and the environment in
which they operate has become increasingly complex. The framework within which local authorities reach
decisions has been subject to ongoing reform, but there remains significant autonomy for local authorities to
set their own rules and make decisions on development within their area. This is consistent with the
promotion of local democracy and the concept of subsidiarity. There are increased requirements to extend
the planning horizon in dealing with environmental and infrastructure issues.
Decisions about the use of land are important to the community. They involve costs to some, and benefits to
others. Community consultation can and should influence the outcome, but the ways and means of
consulting with the community need to be carefully considered to ensure that the needs of the entire
community, including the needs of future generations, are being met. Identifying leading practices and
innovation in consultative processes is an important way to improve processes, performance, and outcomes
across New Zealand.
iii
iv
Scope and aims

The Commission is requested to undertake an inquiry to examine and report, in a comparative sense, the bylaws, processes, and practices of local planning and development systems to identify leading practices that
enable the timely delivery of housing of the type, location, and quality demanded by purchasers. The
Commission should particularly focus on urban growth areas, including any early lessons from the Housing
Accords and Special Housing Areas Act 2013, and consider successful international experiences with urban
development.
Planning and development systems should be reviewed with respect to how they deliver an adequate
effective supply of development capacity for housing. The inquiry should review practices of the larger urban
planning and development systems, including but not limited to the authorities of the largest and/or fastestgrowing urban areas, and any comparable international urban areas with valuable lessons.
The Commission would be expected to provide information on absolute and relative performance, identify
leading practices, and make recommendations to improve performance with respect to: (i) policies,
strategies, outcomes and processes for urban land supply, including the provision of infrastructure; (ii)
funding and governance of water and transport infrastructure; (iii) governance, transparency and
accountability of the planning system; (iv) the implication of leading practice for the range of laws governing
local authority planning; (v) involvement and engagement with the community.
Exclusions
This inquiry is not a fundamental review of the Resource Management Act, and does not include the
processing of building consents. It does not include consideration of changes to the ownership of
infrastructure assets, but does include the funding and governance (including legal structure of ownership) of
those assets.
Consultation
To ensure that the inquirys findings provide practical and tangible ways to improve the performance of
development and planning systems, the Commission should work closely with Local Government New
Zealand, Society of Local Government Managers and the wider local government sector.
Timeframes
The Commission must publish a draft report and/or discussion document, for public comment, followed by a
final report that must be presented to referring Ministers by 30 September 2015.
Referring Ministers
Hon Bill English, Minister of Finance
Hon Dr Nick Smith, Minister of Housing
Hon Paula Bennett, Minister of Local Government
Hon Amy Adams, Minister for the Environment
About the draft report

This draft report aims to assist individuals and organisations to participate in the inquiry. It outlines the
background to the inquiry, the Commissions intended approach, and the matters about which the
Commission is seeking comment and information.
This draft report contains the Commissions draft findings and recommendations. It also contains a limited
number of questions to which responses are invited but not required. The Commission welcomes
information and comment on all issues that participants consider relevant to the inquirys terms of reference.
Key inquiry dates

Release of draft report
17 June 2015
Submissions due on the draft report
4 August
Final report to the Government
30 September
Why you should register your interest

The Commission seeks your help in gathering ideas, opinions and information to ensure this inquiry is well
informed and relevant. The Commission will keep registered participants informed as the inquiry progresses.
You can register for updates at www.productivity.govt.nz/subscribe-to-updates, or by emailing your contact
details to info@productivity.govt.nz.
Contacts
Administrative matters:
T: +64 4 903 5167

E: info@productivity.govt.nz
Other matters:
Steven Bailey
Inquiry Director
T: +64 4 903 5156
E: steven.bailey@productivity.govt.nz
Postal address for submissions:
Using land for housing inquiry

New Zealand Productivity Commission
PO Box 8036
The Terrace
WELLINGTON 6143
Website:
www.productivity.govt.nz
Why you should make a submission

Submissions provide information to the inquiry and help shape the Commissions recommendations in the
final report to the Government. Inquiry reports will quote or refer to relevant information from submissions.
How to make a submission

The due date for submissions in response to this report is 4 August. Late submissions will be accepted, but
lateness may limit the Commissions ability to consider them fully.
Anyone can make a submission. Your submission may be written or in electronic or audio format. A
submission may range from a short letter on one issue to a substantial response covering multiple issues.
Please provide relevant facts, figures, data, examples and documents where possible to support your views.
The Commission welcomes all submissions, but multiple, identical submissions will not carry more weight
vi
than the merits of your arguments. Your submission may incorporate relevant material provided to other
reviews or inquiries.
Your submission should include your name and contact details and the details of any organisation you
represent. The Commission will not accept submissions that, in its opinion, contain inappropriate or
defamatory content.
The Commission appreciates receiving an electronic copy of posted submissions, preferably in Microsoft
Word or searchable PDF format. Please email the files to info@productivity.govt.nz.
What the Commission will do with the submissions

The Commission seeks to have as much information as possible on the public record. Submissions will
become publicly available documents on the Commissions website. This will occur shortly after receipt,
unless your submission is marked in confidence or you wish to delay its release for a short time. Please
contact the Commission before submitting in confidence material, as it can only accept such material
under special circumstances.
Other ways you can participate

The Commission welcomes feedback about its inquiry. Please email your feedback to
info@productivity.govt.nz or contact the Commission to arrange a meeting with inquiry staff.
Contents
Contents
Terms of reference .........................................................................................................................iii
About the draft report.................................................................................................................... v
Key inquiry dates ..................................................................................................................................... v
Why you should register your interest ................................................................................................... v
Contacts ................................................................................................................................................... v
Why you should make a submission ...................................................................................................... v
How to make a submission ..................................................................................................................... v
What the Commission will do with the submissions............................................................................ vi
Other ways you can participate............................................................................................................. vi
Overview ........................................................................................................................................ 1
Why this inquiry is important .................................................................................................................. 1
Cities, growth and land for housing....................................................................................................... 2
The planning system can work better.................................................................................................... 4
Getting infrastructure in place ............................................................................................................... 7
Shaping behaviour to release and develop land ................................................................................ 11
The case for an urban development authority .................................................................................... 12
Conclusion ............................................................................................................................................. 14
1
About this inquiry ................................................................................................................ 16

1.1 Introduction ................................................................................................................................. 17
1.2 What the Commission has been asked to do ........................................................................... 18
1.3 What this inquiry is not about .................................................................................................... 19
1.4 Why this inquiry is important...................................................................................................... 19
1.5 Approach to the inquiry ............................................................................................................. 20
1.6 Guide to the report..................................................................................................................... 24
Cities, growth, and land for housing.................................................................................... 26

2.1 Introduction ................................................................................................................................. 27
2.2 The benefits and the costs of cities ........................................................................................... 27
2.3 A framework for understanding the impact of city policies ..................................................... 31
2.4 The supply response to an increase in demand ....................................................................... 36
2.5 Responsibility for planning: councils, planners and community.............................................. 39
2.6 What do we find in New Zealands fastest growing areas? ..................................................... 46
2.7 Impacts on people and the economy ....................................................................................... 55
2.8 Conclusion................................................................................................................................... 62
Integrated planning ............................................................................................................. 63

3.1 Introduction ................................................................................................................................. 63
3.2 Integrated planning systems and processes............................................................................. 64
3.3 Spatial plans ................................................................................................................................ 69
3.4 The need for flexibility and vigilance......................................................................................... 72
3.5 Options for closer integration .................................................................................................... 80
3.6 Conclusion................................................................................................................................... 87
Supplying and releasing land ............................................................................................... 88

4.1 Introduction ................................................................................................................................. 88
4.2 Supply targets ............................................................................................................................. 89
4.3 Covenants.................................................................................................................................... 95
4.4 Prioritising the release and use of public sector land ............................................................ 100
4.5 Rezoning .................................................................................................................................... 103
4.6 The costs and benefits of appeals ........................................................................................... 110
4.7 Conclusion................................................................................................................................. 115
Regulations and approval processes .................................................................................. 116
vii
viii
5.1
5.2
5.3
5.4
5.5
5.6
5.7
5.8
Introduction ............................................................................................................................... 116

Proportionate and well-targeted regulations ......................................................................... 116
How land use regulations are made in New Zealand ............................................................ 117
Impacts of regulation on housing supply ................................................................................ 118
Problems with regulatory development .................................................................................. 124
Streamlined approval processes.............................................................................................. 130
Inclusionary housing policies ................................................................................................... 139
Conclusion................................................................................................................................. 145
Planning and delivering infrastructure ............................................................................... 146

6.1 Introduction ............................................................................................................................... 146
6.2 The role of infrastructure in land supply and dwelling cost ................................................... 147
6.3 How does the planning process work for infrastructure?....................................................... 151
6.4 Challenges in planning infrastructure...................................................................................... 155
6.5 Approaches to increasing the supply of infrastructure .......................................................... 156
6.6 Effective use of existing infrastructure assets ......................................................................... 160
6.7 Challenges relating to infrastructure construction ................................................................. 171
6.8 Conclusion................................................................................................................................. 178
Paying for infrastructure .................................................................................................... 179

7.1 Introduction ............................................................................................................................... 179
7.2 Challenges associated with paying for infrastructure ............................................................ 180
7.3 How do local authorities finance investment in infrastructure? ............................................. 183
7.4 How do local authorities fund infrastructure? ......................................................................... 192
7.5 Development and financial contributions ............................................................................... 193
7.6 Conclusion................................................................................................................................. 201
Governance of transport and water infrastructure ............................................................ 202

8.1 Transport infrastructure ............................................................................................................ 203
8.2 Water infrastructure .................................................................................................................. 206
8.3 CCOs and the delivery of water and transport infrastructure................................................ 214
8.4 Infrastructure growth charges .................................................................................................. 220
8.5 Conclusion................................................................................................................................. 225
Shaping local behaviour..................................................................................................... 227

9.1 Introduction ............................................................................................................................... 227
9.2 The political economy of local planning ................................................................................. 228
9.3 Implications for the inquiry....................................................................................................... 234
9.4 Do councils want their population to grow? ........................................................................... 246
9.5 Land banking............................................................................................................................. 250
9.6 Options to encourage the development of land ................................................................... 258
9.7 Conclusion................................................................................................................................. 269
10
Planning and funding our future ........................................................................................ 270

10.1 Introduction ............................................................................................................................... 270
10.2 Amalgamation of land .............................................................................................................. 273
10.3 An urban development authority ............................................................................................ 285
10.4 Funding growth-enabling infrastructure through value capture ........................................... 295
10.5 Conclusion................................................................................................................................. 303
Summary of questions ................................................................................................................ 305

Findings and recommendations .................................................................................................. 309
Appendix A Public consultation ................................................................................................. 324
Appendix B Measuring density .................................................................................................. 329
References .................................................................................................................................. 331
Tables
Table 1.1
Table 2.1
Table 2.2
Table 3.1
Table 3.2
Table 3.3
Table 3.4
Table 3.5
Table 3.6
Table 4.1
Table 4.2
Table 4.3
Table 4.4
Table 4.5
Table 4.6
Table 4.7
Table 4.8
Table 5.1
Table 5.2
Table 5.3
Table 6.1
Table 6.2
Table 6.3
Table 6.4
Table 7.1
Table 8.1
Table 8.2
Table 8.3
Table 8.4
Table 9.1
Table 9.2
Table 10.1
Table 10.2
Table 10.3
Table 10.4
Table 10.5
Table 10.6
Table 10.7
Territorial authorities that the Commission studied .................................................................... 22

Scenarios demonstrating the effect of the residual value model on land price ........................ 49
Projected population and household growth, 20112031 ........................................................... 56
New Zealand spatial plans ............................................................................................................. 69
Areas of focus in selected New Zealand spatial plans ................................................................. 70
Urban limits in areas with spatial plans ......................................................................................... 72
Intensification/density targets ....................................................................................................... 74
Agricultural soil protection goals and policies ............................................................................. 77
Changes in New Zealands land cover between 1997 and 2002 ................................................. 78
Land supply objectives/policies in selected RMA plans .............................................................. 90
Publicly owned land in Auckland ................................................................................................. 101
Publicly owned bare land in Auckland and Wellington (RB classification) ............................... 102
Publicly-owned vacant land in Auckland and Wellington (RV classification) ............................ 102
Summarised timelines for selected Auckland plan changes ..................................................... 106
Average timeframes for completion of selected Bay of Plenty plan changes .......................... 107
Time taken to complete District Plan changes and make changes operative, by type of
council ........................................................................................................................................... 107
Elapsed time to complete land rezoning / amendments to planning schemes in major
Australian cities (calendar months) .............................................................................................. 108
Cost impacts of Auckland planning rules and regulations ........................................................ 119
RMA legislative tools that apply to electricity or telecommunications ..................................... 136
Affordable housing provisions in Housing Accords agreed to date ......................................... 140
Local Government Act planning processes ................................................................................ 152
Greenfield land status in Christchurch City ................................................................................ 159
Approaches to water metering: selected high growth councils................................................ 169
Responsibility for infrastructure delivery, funding and maintenance ........................................ 173
Local authority financial prudence benchmarks ......................................................................... 187
Responsibility for land transport functions in Wellington .......................................................... 203
Public good characteristics of water services ............................................................................. 212
Arms-length delivery: selected advantages and disadvantages .............................................. 216
Statement of Intent performance measures: Auckland Transport and Watercare .................. 218
Voting rates among the 10 territorial authorities that are the focus of this inquiry ................. 229
Arguments for and against exempting Crown land from rates ................................................. 267
Selected recommendations from previous chapters ................................................................. 271
Ends and means approaches to land acquisition ....................................................................... 278
Design feature for an Urban Development Authority ................................................................ 291
Estimates of value capture revenue in Auckland........................................................................ 300
Comparison of value capture approaches .................................................................................. 302
An example of population-weighted density ............................................................................. 329
Population-weighted density in New Zealand and Australian cities ......................................... 329
Figures
Figure 1
Figure 2
Figure 3
Figure 1.1
Figure 1.2
Figure 1.3
Figure 1.4
Figure 1.5
Figure 2.1
Figure 2.2
Figure 2.3
Figure 2.4
Figure 2.5
Figure 2.6
Figure 2.7
Figure 2.8
Figure 2.9
Nominal median land values ........................................................................................................... 3

Barriers to resolving land supply problems .................................................................................. 13
How a UDA would address barriers to land supply...................................................................... 15
Nominal median land values ......................................................................................................... 17
What contributes to the supply of development capacity? ......................................................... 18
Types of local authorities ............................................................................................................... 21
Average annual absolute population growth ............................................................................... 21
Building consents and projected housing demand in Auckland ................................................ 23
Labour productivity in selected NZ cities, compared to the rest of New Zealand .................... 28
Amenity in urban and rural areas................................................................................................... 29
An unconstrained urban equilibrium baseline model ............................................................... 33
Effects of a larger population ........................................................................................................ 34
Effects of a building height restriction .......................................................................................... 34
Effects of transport investment and commuting costs ................................................................ 35
Supply responsiveness of housing to price changes, selected countries ................................... 38
Nominal median land values ......................................................................................................... 47
Land value as a share of total property value ............................................................................... 47
ix
Figure 2.10
Figure 2.11
Figure 2.12
Figure 2.13
Figure 2.14
Figure 2.15
Figure 2.16
Figure 2.17
Figure 2.18
Figure 2.19
Figure 2.20
Figure 2.21
Figure 2.22
Figure 2.23
Figure 2.24
Figure 2.25
Figure 3.1
Figure 3.2
Figure 4.1
Figure 4.2
Figure 4.3
Figure 5.1
Figure 5.2
Figure 6.1
Figure 6.2
Figure 6.3
Figure 6.4
Figure 7.1
Figure 7.2
Figure 7.3
Figure 7.4
Figure 7.5
Figure 7.6
Figure 7.7
Figure 7.8
Figure 9.1
Figure 9.2
Figure 9.3
Figure 9.4
Figure 9.5
Figure 9.6
Figure 9.7
Figure 9.8
Figure 9.9
Figure 9.10
Figure 10.1
Figure 10.2
Figure 10.3
The value of new housing relative to existing housing stock (5-year averages) ......................... 48
Average floor size of new dwellings .............................................................................................. 49
The contribution to intensification by distance from the centre of Wellington ......................... 50
The contribution to intensification in the Waikato by distance from the centre of Hamilton ... 50
The contribution to intensification by distance from the centre of Auckland ............................ 51
The contribution to intensification by distance from the centre of Christchurch ....................... 51
The contribution to intensification by distance from the centre of Tauranga ............................ 52
Variation in the stringency of land use regulation across nine New Zealand councils .............. 54
Delays in acquiring approval for development across councils .................................................. 54
Share of households that spend more than 30% of their disposable income on housing in
New Zealand ................................................................................................................................... 55
Average share of disposable household income spent on housing: selected OECD
countries, 2012 ................................................................................................................................ 56
Projected changes in New Zealand household types, 20062031 .............................................. 57
Percentage of households that owned or partly owned their dwelling or held it in a family
trust ................................................................................................................................................. 57
Percentage of people reporting major problems with their housing, by tenure type ............... 58
Share of New Zealands population living in crowded and severely crowded housing,
19912013 ....................................................................................................................................... 59
Average net wealth by decile ........................................................................................................ 60
Hierarchy of RMA plans .................................................................................................................. 65
Stylised presentation of the planning and development system ................................................ 68
Impact of different levels of land readiness on the housing supply chain .................................. 92
Stylised presentation of Schedule 1 process for preparing a new Plan or Plan change .......... 104
Distribution of operative District Plan changes, by calendar days taken to complete and
type of territorial authority ........................................................................................................... 106
Building consents and mean floor area of apartments consented in Auckland, 19982014 ... 121
Percentage of territorial authority consent applications, by activity type................................. 138
Infrastructure costs in Auckland by development density ......................................................... 150
Forecast accumulated renewals expenditure and depreciation, high-growth territorial
authorities ..................................................................................................................................... 162
Interdisciplinary benefits from asset management .................................................................... 165
Participation in decisions a spectrum of engagement goals .................................................. 175
Capital goods price index for civil construction ......................................................................... 181
How important is the cost of new infrastructure in influencing the rate of residential
development? ............................................................................................................................... 182
How important are city budget constraints in influencing the rate of residential
development................................................................................................................................. 182
Sources of capital in high-growth councils, 2013 ....................................................................... 183
Local authorities total debt, 2013 ............................................................................................... 185
Total debt by head of population, 2013 ..................................................................................... 185
Local authorities interest expenditure as a share of total revenue, 2013 ................................ 188
Summary of local government revenue sources, 2013............................................................... 193
Turnout in local elections ............................................................................................................. 228
Voter enrolment rates by age ...................................................................................................... 229
Voting rates in local elections by age ......................................................................................... 230
Proportion of people who own a home by age.......................................................................... 230
Feedback on Draft Auckland Unitary Plan by ethnicity .............................................................. 237
Feedback on Draft Auckland Unitary Plan by age group .......................................................... 237
House price inflation in selected countries ................................................................................. 247
Size of landowners total holdings of bare land suitable for subdivision for housing .............. 253
Distribution of property values across income deciles .............................................................. 261
Comparison of actual sales prices against assessed values in one New Zealand city ............. 262
Barriers to resolving land supply problems ................................................................................ 273
Types of land value creation ........................................................................................................ 295
How a UDA might address barriers to resolving land supply .................................................... 303
KEY
Q
Question
Finding
Recommendation
xi
Overview
Overview
The Government has asked the Commission to review the local planning and development systems across
New Zealands faster-growing urban areas and identify leading practices that are effective in making enough
land available to meet housing demand. Comparable overseas systems should also be investigated where
they provide valuable lessons for New Zealand.
Why this inquiry is important

Housing is fundamental to our economic and social wellbeing. It plays a central role in individual and
community health, family stability and social cohesion. A responsive housing market facilitates labour market
mobility, allowing people to move to take up job opportunities, enhancing the productivity of the economy.
Providing an adequate supply of land and development capacity for housing, and the associated
improvement in housing affordability, have the potential to lift the living standards of many New Zealanders.
Strong population growth but housing supply struggling to keep pace

New Zealands population is growing. This growth is concentrated in a handful of cities, but especially in
Auckland. The number of dwellings required to house the population of these cities will grow at an even
greater rate as household size becomes smaller. Housing supply in many cities has been sluggish in
response to population growth and struggled to keep pace with increasing demand. This has manifested
itself in the increased price of housing where housing is in short supply, and in the high proportion of
disposable income spent on housing in New Zealand compared with many other OECD countries. Making
sure a choice of housing types is available at different price points, to cater for a range of income levels, is
critically important to the effective functioning of the housing market, the economy, and the wellbeing of
New Zealanders.
The price of land is increasing, reflecting a constrained and stressed planning system
A number of factors affect the supply of housing, but one of the most important is the availability of land,
both brownfields and greenfields. Land values have grown more quickly than total property values over the
last 20 years, indicating that appreciating land values have been a key driver of house price inflation in
New Zealand. This suggests a shortage of residential land in places where people want to live. The problem
is particularly acute in Auckland, where land value accounts for as much as 60% of total property value,
compared with about 40% in the rest of New Zealand.
Planning systems and land use regulations imposed by central, regional and local government affect the
speed and efficiency with which land is made available for residential development, including the more
intensive use of land within existing city boundaries. Decisions about the amount of land to be released, the
timing of when this will happen, how it can be developed, and when it will be serviced with infrastructure, all
directly impact on the price of land and, in turn, on the price of housing. Constraints on the release of land
and development capacity (within and on the edge of cities) create scarcity, limit housing choice, and
increase housing prices. These impacts are disproportionately felt by people on lower incomes.
Unlocking land supply a critical first step

Unlocking land for housing is a necessary first step and catalyst for productivity improvements in other parts
of the housing supply pipeline. Unlocking land allows economies of scale in land assembly, land
development and housing construction. Larger building firms are able to generate scale efficiency from
building large numbers of houses on contiguous sites and by purchasing at a greater scale, particularly
building materials. Yet the building industry in New Zealand is characterised by small firms that build just
one or two houses a year. The current industry structure is a product of the environment in which it operates,
which is characterised by fragmented and expensive land supply (NZPC, 2012). Importantly, without greater
land supply, any construction efficiencies are likely to accrue to landowners, rather than home buyers.
Substantial benefits are on offer

A recent report considering global housing affordability issues concludes that unlocking land supply at the
right location is the most critical step in providing affordable housing (McKinsey Global Institute, 2014, p. 7).
The report estimates that unlocking land supply could reduce the annualised cost of a standard unit of
housing by between 8% and 23%. Remarkably, in the worlds least affordable cities (including Auckland),
unlocking land supply could help to reduce the cost of housing by between 31% and 47%. Productivity
improvements in construction, by taking advantages of scale or taking an industrial approach to
construction, could help to reduce the cost of housing by a further 12%16%.
Local regulatory constraints to releasing land and development capacity for housing can impact on the
functioning of the national economy. A recent research paper published by the National Bureau of
Economic Research in the United States (Hsieh & Moretti, 2015) suggests that releasing adequate land and
development capacity, by lifting barriers to urban growth, could raise Gross Domestic Product in the United
States by as much as 9.5%. Much of the productivity gains are from workers being able to locate and work in
cities that offer higher productivity and higher-wage jobs. It is difficult to think of many other policies that
would yield such an improvement in a nations economy.
The inquiry
This inquiry investigates the effectiveness and efficiency of the planning and development system in
New Zealand:
How well does the system meet the demand for land in its most valued use, and provide infrastructure
efficiently and in a way that is responsive to demand?
Can the current system be made to work better for New Zealanders?
Is a different institutional framework required to deal with the complexity, negative effects and
coordination problems faced by our fastest growing cities?
A spectrum of possible improvements has been identified, ranging from incremental to more fundamental
change.
Cities, growth and land for housing

Cities are national assets. When cities function well, they provide greater choices of employment and more
opportunities for specialisation, and they have higher incomes and productivity than other areas. This is
because firms located in close proximity to each other can take advantage of having access to a wider pool
of skilled labour, better links to markets for both inputs and outputs, and the ability to share knowledge.
However, the concentration of people and businesses in cities also creates costs, such as pressure on
infrastructure and on the availability of housing. This puts a premium on good city organisation and on the
ability to plan for growth.
Population growth in New Zealand has been strong over the last decade. The supply responsiveness of the
housing market influences the degree to which an increase in housing demand leads to more housing or to
higher housing prices. If the supply of housing is constrained in some way, then increased demand will tend
to feed into higher housing prices, rather than an expansion in housing supply. The extent to which new
housing can be constructed in response to changes in demand is determined by a number of factors,
including:
the constraints of local geography;
land use and planning regulations that determine how much land is available for new dwellings or how
intensely it can be used for housing;
the ability to service land with infrastructure to support new housing; and
the extent to which the construction sector can gear up and build the type of housing demanded.
Overview
These factors can act in tandem to constrain housing supply. For example, Saiz (2010) found that US cities
that were naturally geographically constrained also had the strictest regulatory constraints. One explanation
for this is that geographically constrained cities are likely to have higher land values, and so citizens have
greater incentives to use the political process to push for regulation that protects those values.
In the absence of constraints, cities will respond to population increases by making more efficient use of
land, increasing density through building higher buildings and smaller dwellings in their centres.
The functioning of cities can also be enhanced by well-targeted policy interventions, such as investments in
transport infrastructure. Yet the interest of the nation in having cities grow may not be reflected in local
choices and planning systems. Local residents may not wish to bear the costs of growth (eg, congestion) and
may act to slow or constrain the development of their cities. Existing homeowners also benefit from policies
that restrict the supply of new dwellings, as they help keep the price of housing high.
The Commission has found that New Zealand cities have different density profiles. Wellington, for example,
has seen significant intensification close to the city centre. In contrast, in some other cities the biggest
contribution to intensification has occurred in outlying suburbs. This suggests barriers to intensification in
and near the centre of these cities.
The demand for housing and the impact of local policies that constrain supply is reflected in land values in
New Zealands major cities and high-growth areas. Land values have increased significantly since the middle
of the last decade (both in nominal terms and as a share of total property values) (Figure 1).
Figure 1
Nominal median land values
450 000
400 000
Nominal median land prices ($)
350 000
300 000
250 000
200 000
150 000
100 000
50 000
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Year
Source:
Auckland
Christchurch City
Hamilton City
Queenstown Lakes District
Selwyn District
Tauranga City
Waikato District
Waimakariri District
Wellington City
Whangarei District
rest of NZ
Productivity Commission analysis of Quotable Value data.
High land prices encourage the production of larger and more expensive housing. In New Zealand, the
average size of new dwellings has increased by more than 50% since 1989. More than half of the new builds
in New Zealand in 2014 were valued in the upper quartile of all housing stock, driven by the price of land.
Concerns about the ability of New Zealands planning systems to respond to the need for new housing, and
about the extent of constraints placed on development, are not new. However, population growth over the
past decade has highlighted the pressing nature of the problems that cities and other high-growth areas
face in meeting the demand for housing. Easing unnecessary constraints and providing the development
capacity for new housing allows cities to grow. It is in the nations interest to have its citizens able to take
advantage of the greater employment and life opportunities available within vibrant and productive cities.
The planning system can work better

The planning system is complex. It is governed by three main statutes (Box 1). Each statute creates its own
set of institutions, policies, processes and rules. Together they set the regulatory framework for the supply of
land and development capacity required for housing.
Box 1
Regulatory framework for the planning and development system
New Zealands planning and development system is governed by three main Acts of Parliament:
the Resource Management Act (RMA) 1991 authorises, limits or prohibits the use of land, so as to
promote sustainable management;
the Local Government Act (LGA) 2002 establishes processes to shape the provision of infrastructure
that is needed to make land viable for housing; and
the Land Transport Management Act (LTMA) 2003 establishes processes to shape the provision of
transport infrastructure and services.
A host of other statutes also have an impact on the planning and development system, including the
Building Act 2004, the Public Works Act 1981, the Reserves Act 1977, the Property Law Act 2007, the
Unit Titles Act 2010, and the Local Government (Rating) Act 2002.
The Commission has examined the regulatory framework for the planning and development system and
seen the need for improvements in the following thematic areas:
systems and processes for integrating land use, transport and infrastructure;
strategies for supplying and developing land; and
regulation and approval processes.
Integrated planning
Effective urban planning and development systems link decisions about land use (eg, zoning) with the
provision of infrastructure (eg, water) and other services, such as transport. However, New Zealands
planning system creates a complex web of legislative obligations and plans that, collectively, can make it
difficult to effectively and efficiently coordinate land use, transport and infrastructure decisions.
Many of the local authorities within the scope of this inquiry have tried to overcome problems with the
legislative system by developing non-statutory spatial plans. These spatial plans act as linchpins for other
statutory plans and local authority strategies.
Little data is available about the relative effectiveness of New Zealand spatial plans in releasing sufficient
land for residential development. However, inquiry participants identified a number of benefits from such
plans. These benefits include greater intra-regional cooperation and understanding, more efficient
infrastructure use and investment, and a better ability to respond to natural disasters (such as the Canterbury
earthquakes) or to new policy initiatives.
Many New Zealand spatial plans (and their associated RMA plans) impose urban limits and set density or
intensification targets. The permanence of the urban limits or hardness of density targets vary between
individual plans. These policies need to be carefully designed and monitored, to avoid creating negative
impacts on housing supply.
Overview
Spatial plans as they currently operate lack regulatory force and need to be translated into district plans and
other regulatory instruments. A number of local authorities expressed frustration at the statutory
consultation and analytical requirements involved in translating spatial plans into RMA regulatory plans.
However, the Commission considers that these statutory requirements help to ensure that land use
regulation is well-designed and that affected parties have the opportunity to be heard.
Speeding up the translation of spatial planning processes into land use regulation, without compromising
analytical rigour or consultation, is likely to require the development of a new legislative avenue for larger or
faster-growing cities. This could combine infrastructure strategies, longer-term transport planning and
longer-term thinking about the growth of the city with the development of land use rules.
The new legislative avenue for cities should be voluntary, and so allow local authorities to choose the
statutory planning mechanisms that best suit their circumstances. It should also be tightly focused on
activities of high importance to the functioning of cities and the demand for land. Large numbers of
objectives in spatial plans, and goals that do not bear a strong relation to the demand for land, would
complicate the implementation of these plans and the development of efficient regulation.
Future plans prepared under the proposed new legislative avenue should be developed in partnership with
the full set of central government agencies whose services, such as education and health, matter for the
functioning of cities. To date, central government has played a limited role in developing spatial plans.
Given the fiscal implications of greater central government involvement in spatial planning, both Cabinet
and the relevant local authority should approve any future plans.
Finally, the new legislative planning avenue should include processes to encourage robust regulatory
analysis and development, as section 32 of the RMA is designed to do. Central government could bring its
regulatory expertise and capability to bear so as to properly test proposals for new land use rules and
regulations in future spatial plans. Possible options include peer review by the Treasury or use of an
Independent Hearings Panel to provide expert impartial review.
Strategies for supplying and developing land

Overseas jurisdictions apply a number of specific processes and techniques to ensure an adequate supply of
land for housing. Yet few of the key processes identified by the Commission are used to their full potential in
New Zealand.
Many New Zealand urban local authorities have goals for the supply of land to meet future residential
growth, but the form and strength of these goals varies between councils. Only Auckland Council and the
Western Bay of Plenty SmartGrowth partnership have quantified land supply targets.
The readiness of land matters for the efficiency of the housing supply chain. Land that is both zoned and
serviced will put the most competitive pressure on land and house prices, as it is more readily available for
home construction. Auckland Council and Hamilton City Council have supply targets explicitly based on
zoned and serviced land. Other high-growth local authorities should express their land-supply targets in
terms of zoned and serviced land and report publicly on their performance. Greater monitoring of dwelling
completions and net changes in the dwelling stock would better enable local authorities to assess whether
housing shortfalls were building up, and could help trigger reviews of planning controls.
Subdivision covenants are a common feature in property development in New Zealand, and include detailed
restrictions on land use. Many of the covenants reviewed by the Commission appear to be unduly
prescriptive. Covenants established in building schemes can reduce the supply of land for housing now and
in the future, and increase the cost of building dwellings. The Commission seeks views on the merits of
statutory controls on subdivision covenants. These include time limits, placing restrictions on the subject
matter of covenants, providing councils with powers to override private covenants, or creating mechanisms
to reduce the barriers to extinguishing covenants without unanimous consent.
The Crown and local authorities own large amounts of land. Information about the quantity and state of this
land is patchy. However, available information suggests that significant amounts of public land may be bare,
vacant or substantially unimproved and suitable for residential development.
The Government has recently announced a tender to use 430 hectares of Crown land in Auckland for
housing, and has taken early steps to use public land in Christchurch to increase the supply of affordable
housing. Scope may exist to use public land holdings in other high-growth cities to help offset the
nationwide shortfall of lower-priced housing. The Ministry of Business, Innovation and Employment (MBIE)
should work with local councils in high-growth areas to identify surplus land that could be used for housing.
The ability to promptly rezone land plays an important part in increasing land supply, by bringing new land
to market (eg, by converting rural land to urban use) and increasing the development capacity of existing
urban land (eg, by increasing height limits or reducing minimum lot sizes). Plan changes are the mechanism
by which land is rezoned for different uses. Councils in high-growth cities take longer on average to make
plan changes operative than other local authorities. Consultation obligations and appeals contribute to
these longer timeframes.
The Commission considers a case exists where local authorities are given more flexibility over notification
and consultation for proposed plan changes that are specific to particular sites. Such changes would help to
ensure that those directly affected by a plan change (eg, current landowners in the site, and immediate
neighbours) have a right to be notified and heard, while opening up opportunities for faster and more
efficient rezoning processes. The Commission is interested in hearing views on how eligibility to be notified
and consulted on such proposed plan changes should be defined.
Reforms to appeal avenues require careful trade-offs to be struck between the goals of speeding up
rezoning processes and ensuring that they deliver quality outcomes. The Commission is interested in
receiving evidence on whether greater use of independent commissioners in planning decisions would
provide the level of rigour required to justify further restrictions on appeals.
Engagement with affected parties on proposed plan changes ahead of their notification, and circulation of
draft plan changes for comment, are leading practices and may help reduce the incidence of appeals. This
aligns with the Commissions recommendations in its Regulatory Institutions and Practices report that there
should be a general expectation that exposure drafts of legislation will be published and consulted on
ahead of the formal introduction of Bills to Parliament (NZPC, 2014). Early consultation on detailed proposals
helps to clarify whether proposals are feasible and efficient, and provides an opportunity to iron out
problematic provisions.
Regulation and approval processes

Land use regulations can play an important part in managing externalities and reducing transaction costs, by
laying out clear requirements for the use of land and avoiding the need for multiple contractual negotiations
between individuals. However, land use regulations can affect the price and supply of housing.
Most land use regulations in New Zealand are made under the RMA in District Plans. To provide an overall
benefit to the community, regulations must be designed with all the relevant costs and benefits in mind.
Evidence collected through this inquiry suggests that some local authority regulations are imposing high
compliance and economic costs, leading to increases in the cost of development and the loss of potential
housing. The costs of some particular regulations appear to outweigh any likely benefits. Problems with
excessive regulatory costs stem from a number of sources. These are multiple or conflicting objectives in
District Plans, inadequate analysis before rules are introduced, and poor overlaps with other regulatory
frameworks. A number of recommendations are made where specific regulations do not appear justified
(Box 2).
Box 2
The costs of regulation outweigh the benefits
The Commission has identified a number of regulations where the costs appear to outweigh the likely
benefits. These have the effect of reducing the density of urban land use and increasing the cost of
housing. It is recommended that urban territorial authorities should:
Overview
remove District Plan balcony / private open space requirements for apartments;
review minimum apartment size rules in their District Plans, with a view to removing them (once the
MBIE has completed planned work on updating Building Code rules and guidance related to air
quality, lighting, acoustics and access in multi-unit dwellings);
remove District Plan minimum parking requirements and make more use of techniques for
managing traffic demand;
lift current building height limits where it cannot be demonstrated that the benefits outweigh the
costs; and
undertake robust cost-benefit analyses before considering the introduction of building height
limits.
The inquiry Terms of Reference state that this inquiry is not a fundamental review of the Resource
Management Act. As a result, the Commission has been reluctant to consider issues of the RMAs purpose
and focus. However, the topic of the RMAs impact on the ability of cities to change and provide for housing
was so prominent in the evidence presented to this inquiry that the Commission concluded that it needed to
address the matter explicitly. In particular, there are strongly diverging views about the appropriate
weighting given in the RMA to urban growth outcomes and housing relative to other outcomes. The
Government should therefore introduce amendments to the RMA to clarify the role and importance of
housing and urban environments.
Uncertainty about council obligations and problems coordinating between different units within councils
create costs and delays for developers. Processes to improve internal council coordination (eg, one-stop
shops) and greater use of electronic planning tools would help reduce these delays. The national planning
system also has some scope for greater standardisation and liberalisation.
Inclusionary housing policies provide requirements or incentives for developers to provide affordable or
lower-cost housing. They are a common feature of overseas planning systems, but are not prominent in
New Zealand. Only Auckland and Queenstown have inclusionary housing policies in their current or
proposed District Plans, although Special Housing Areas (SHAs) and Housing Accords provide more
opportunities to introduce such policies.
Inclusionary housing policies should not be a substitute for planning system reform. If the planning system is
the proximate cause of declining affordability, planning system reform should be the priority response.
However, inclusionary housing policies can be seen as a second best option, where planning system
reform fails to deliver sufficient flexibility or fast enough responses to longstanding housing deficits.
To be most successful, inclusionary housing policies should be designed with the nature of the current
planning system in mind. In New Zealands case, this means that incentive-based (rather than mandatory)
policies are more suitable. Inclusionary housing policies are also most likely to succeed where they are part
of a wider suite of tools, most of which require central government support.
Getting infrastructure in place

Infrastructure is a critical part of the housing supply pipeline and a significant share of the total cost of new
dwellings (Box 3). Releasing land that is not serviced with infrastructure does nothing to improve housing
supply. Providing infrastructure for new housing can be an expensive and risky undertaking for councils.
Councils that install new infrastructure ahead of housing demand may find themselves facing high borrowing
and depreciation costs, particularly if growth occurs at a slower rate than anticipated. For this reason, many
councils try to tightly control the supply of new infrastructure. This constrains the supply of shovel-ready
land (that is both zoned and serviced) for housing.
Box 3
Infrastructure needed to support growth
Accommodating residential growth requires:
transport highways, local roads, footpaths and cycleways, and public transport;
water drinking water supply (also referred to as potable water), collection and treatment of
wastewater, and the removal of stormwater;
energy electricity and natural gas transmission and distribution;
telecommunications fixed line, mobile coverage and internet; and
social and community infrastructure eg, schools, public recreation spaces and libraries.
Most types of infrastructure can be grouped into two categories: trunk infrastructure and local
infrastructure. Trunk infrastructure refers to assets that serve a large number of households, such as
trunk water lines or urban rail services. Local infrastructure relates to the requirements that are specific
to a subdivision or dwelling, such as individual connections to trunk water.
The Commission has examined how infrastructure is planned, delivered, funded and governed across
high-growth councils in New Zealand, as well as overseas, and identified areas for improvement to better
manage the supply of infrastructure and keep pace with demand.
Infrastructure planning and delivery

Forecasts in the Long-Term Plans of high-growth councils point toward a growing and potentially
under-funded requirement for infrastructure renewals. Effectively managing ageing assets and funding the
renewal of infrastructure are likely to be major challenges for councils in the coming years.
Good information and good asset management practices enable councils to make better use of existing
assets, better coordinate and schedule maintenance and replacement work, set well-informed infrastructure
standards, and improve the coordination of infrastructure delivery among different providers. Such practices
also allow an evidence-based approach to spatial planning. Wellington City Councils approach to asset
management is a leading practice.
The potential gains from unlocking spare capacity within existing infrastructure networks and using
infrastructure more efficiently can be substantial. For example, Wellington City Council recently identified
that a significant inner-city residential and commercial development could be accommodated entirely with
existing infrastructure capacity. To exploit spare network capacity requires a deep understanding of existing
infrastructure assets, the current and future network demand, and permissive planning rules that allow
intensification to occur in areas where excess capacity exists.
Councils should make more use of user charges where this can reduce demands on infrastructure. User
charges are an effective approach to managing demand and have substantial potential to reduce the
operating expenditure of councils, and delay or avoid capital investments in new infrastructure. Tauranga
City Councils introduction of water meters and volumetric charges resulted in a significant reduction in
demand for water. This, in turn, generated significant savings, primarily because upgrades to water
collection and wastewater treatment infrastructure could be delayed. Other cities could replicate this
experience.
Most types of infrastructure face few barriers to introducing user charges. Yet this is not the case for
transport infrastructure. The LTMA should be amended to allow pricing on existing roads, if a business case
exists to support such a move.
Overview
Staged construction techniques that lower the upfront costs and allow services to be scaled up as demand
increases can help to overcome the difficulties of investing in infrastructure to support future growth. The
staged construction approached that Selwyn District Council uses is a good example of this leading practice.
Development agreements enable developers to take responsibility for building infrastructure that a
council would usually build. This shift has the potential to generate a swifter and lower cost of supply of
infrastructure. The Commission is interested in hearing views about how developer agreements have worked
in practice and whether any barriers exist that unnecessarily limit their use.
Infrastructure standards imposed by councils can be a source of tension between developers and councils.
Decisions about imposing or changing infrastructure standards should be evidence-based and subject to
robust cost-benefit analysis. Where a good case to change infrastructure standards exists, those
developments already with consent should be exempt from the change or be compensated for the
additional costs incurred.
Variations in infrastructure standards between different councils may create unnecessary costs for developers
and infrastructure providers that work across multiple council areas. The Commission has identified a
number of leading practice instruments and forums that promote consistency of standards across
jurisdictions.
Council infrastructure exists alongside infrastructure that is built and maintained by private utility companies.
In some cases, these other infrastructure providers are not well integrated into the broader planning and
land development processes for infrastructure. The Auckland Infrastructure and Procurement Forum
connects infrastructure providers, advisors, constructors and suppliers to provide for better procurement and
coordination of major construction projects. Inquiry participants suggested that this approach to integration
works well and could be adopted more broadly.
Paying for infrastructure

Paying for the infrastructure needed to support urban growth is a significant challenge for many high-growth
councils. The costs associated with urban infrastructure appear to be rising. Many high-growth councils
report that the cost of new infrastructure has a major influence on the rate of residential development.
Factors underlying the increasing cost of infrastructure provision include increasing standards and a
tendency for development to occur in land areas that are more costly to service.
Having effective processes in place to recover the costs of infrastructure from the parties that benefit from
the investment is important. It is also important to acknowledge that these costs are not set and more
efficient processes could potentially reduce them. The way that councils build infrastructure and operate
existing assets can also make a material difference to costs. Any decisions about how infrastructure is paid
for should be framed in the context of ongoing efforts to ensure that infrastructure is provided and managed
in a disciplined, cost-effective and efficient manner.
Debt is an important source of finance for urban infrastructure in high-growth areas. It enables councils to
deliver infrastructure when it is most needed and for infrastructure costs to be spread over the life of the
asset. This means that those who benefit from the infrastructure contribute to paying for it, which promotes
intergenerational equity. Recent reviews have not identified any issues or concern with the use of debt by
high-growth councils. Indeed, many councils are well within prudent debt benchmarks, and arguably take a
conservative approach to taking on debt. This is likely driven by community attitudes and opposition to
debt, as debt is perceived as indicative of future rates increases.
Recent legislative changes have introduced a debt-servicing benchmark. Many high-growth councils are well
within the benchmark. The effect of this benchmark may deter a councils appetite to take on prudent levels
of debt. The Commission recommends that the effects of the debt-servicing benchmark should be
monitored over the coming years to see how it influences a councils ability to provide infrastructure to
support growth and to determine whether current benchmarks for debt-servicing ratios are appropriate for
high-growth councils.
10
Tax increment financing (TIF) is used to raise finance for infrastructure in other countries and some inquiry
participants suggested that the approach might be adopted in New Zealand. Yet TIF does not appear well
suited to financing many types of growth-related infrastructure and does not fit easily with New Zealands
existing rating system. Municipal utility districts (MUDs) are another infrastructure financing approach
suggested by inquiry participants. The main advantages of the approach are that it allows infrastructure to
be built at the initiative of a developer, and the cost of infrastructure is recovered over a long timeframe
from those that benefit. Yet creating multiple, small and fragmented resident-managed utilities through
MUDs is unlikely to be efficient.
Development contributions are a particularly important source of funds for infrastructure. Despite recent
changes to the LGA that sought to improve the approach to development contributions, they remain a
source of tension between developers and councils. A number of leading practices have been identified to
improve the implementation and administration of development contributions policy. Three of these
practices are noted below.
Adherence to the new principles introduced in the Local Government Amendment Act (2014) will
promote efficient choices about the location and type of developments.
Policies that enable flexibility when development contributions are required to be paid will make it easier
for developers to finance development and improve the viability of some projects.
Informal review mechanisms will allow an open dialogue between council and developers to improve the
development contributions policy and implementation.
Councils have considerable scope to increase their use of targeted rates to recoup the upfront costs of
growth-related infrastructure over a longer timeframe. This funding approach allows the cost of infrastructure
to be attributed to those that benefit from the investment and be spread over the life of the asset. The LGA
should be amended to make clear that developers may formally request that councils build growth-enabling
infrastructure, to be repaid through targeted rates on the properties that benefit from the infrastructure
connections, and obliging councils to consider such requests.
Governance of transport and water infrastructure

Supply of transport and supply of water infrastructure are critical components to the effective supply of land
and development capacity for housing. The governance arrangements for these assets are quite different.
For transport infrastructure, central government plays a significant role both in a planning and funding
capacity. The arrangements for water infrastructure are much more devolved.
The primary concern relating to governance of transport infrastructure is the absence of any strong
statement in the Government Policy Statement (GPS) on Land Transport about land supply for housing. The
New Zealand Transport Agency (NZTA) rightly is focused on the three priority objectives specified in the
GPS: economic growth and productivity of the network, road safety, and value for money. Directing NZTA to
refocus its priorities on how transport infrastructure can better support the growth of cities could help
high-growth councils to free up land supply for housing. However, shifting the priorities for land transport
funding could have implications for NZTAs existing priorities.
Because councils or Council Controlled Organisations (CCOs) are the only providers of water services in
New Zealand cities, they are monopoly providers in their area. As such, they are subject to a number of
issues and incentives that can hinder their ability to respond to demands for water services to support urban
growth. Reform of water services in other countries has centred on exploiting economies of scale and
introducing commercial disciplines. This is often done in combination with reform of regulatory and
institutional frameworks, so as to balance commercial with public and environmental objectives. Even so,
urban water systems have merit good aspects and wastewater and stormwater management have public
good aspects. Any funding arrangements need to consider these aspects.
Water management in New Zealand does not appear to have the institutional arrangements to make the
changes necessary to ensure that infrastructure roll-out can adequately respond to new demand. The
Commission considers that alternative funding arrangements should only be examined within the context of
Overview
greater use of network pricing for water supply and an improved governance and regulatory framework for
the whole water sector.
Watercare supplies 1.4 million customers in Auckland, but many other councils may be too small to exploit
economies of scale in water supply and wastewater treatment. The Commission is seeking feedback about
whether taking advantage of scale economies in delivering water services could improve the capacity of
councils to deliver water services more efficiently to support urban growth.
The accountability arrangements for Aucklands CCOs (Auckland Transport and Watercare) are not currently
aligned with Auckland Councils objectives to increase the citys supply of dwellings. This should be
addressed by adding performance measures to CCO statements of intent relating to the efficient roll-out of
new infrastructure to support an increased supply of new dwellings.
Watercare imposes an Infrastructure Growth Charge (IGC) on all new developments connecting to
Watercares network. The IGC is a flat charge, which is applied across Auckland. This flat charge is likely to
distort development costs, reduce transparency over how the IGC is being used, and discourage the
development of dwellings with lower infrastructure costs. The IGC should be changed to better reflect local
factors that materially affect the cost of installing new infrastructure.
The checks and balances that apply to development contributions can effectively be by-passed if
responsibility for certain infrastructure services is delegated to a CCO. There appears not to be any clear
rationale for this. The Commission is interested in receiving further information about whether the existing
checks and balances that apply to Watercare are sufficient.
Shaping behaviour to release and develop land

The Commission has examined the incentives that shape the behaviours and actions of landowners,
homeowners and councils in supplying and developing land for housing. How these behaviours and actions
play out at the local level ultimately determine housing supply. A number of policy measures are proposed
that will help incentivise the release and development of land.
Existing homeowners benefit from local regulations that restrict the supply of new dwellings, as such a
restriction inflates the value of their home. Homeowners therefore have strong incentives to oppose
developments that could affect the amenity and value of their home. Existing ratepayers also have strong
incentives to oppose development that involves council expenditure on infrastructure that will not benefit
ratepayers and that will be recovered through general rates. These incentives materialise in political action.
Existing homeowners are more active politically and have a disproportionate influence on local political
processes, including local body elections and consultation processes. Many of the council practices that
constrain the release and development of land for housing are readily explained as councils being
responsive to those who participate in local democratic processes (Box 4).
Box 4
The outcome of political processes will reflect the interests of those who participate
The dominance of homeowners in local government political processes could help explain a number of
the problems identified in this report, such as:
the existence of urban containment policies and density controls, minimum parking requirements,
minimum apartments sizes, balcony requirements, and lower-than-optimal height restrictions;
controls on the internal design and construction of buildings that exceed standards set under the
Building Act;
land use regulations that make many residential land uses discretionary in district plans, rather
than restricted discretionary or permitted;
a reluctance to use available funding sources, resulting in the rationing of growth-enabling

infrastructure; and
the absence of facilitating growth in the number of dwellings as an objective of CCOs.
11
12
Many of the recommendations outlined in this report will ease constraints on the growth of cities. However,
these recommendations will not, on their own, override the tendency for local interest groups (especially
homeowners) to have a strong and constraining influence on plans. Two options may provide a
counterweight to the disproportionate influence of these groups. First is the promotion of more
sophisticated consultation and engagement processes that reach beyond existing property owners. Second
is shifting the balance between local and national involvement in the planning and development system.
Consultation and engagement processes that seek to understand the wider communitys perspective on
land use regulation can help overcome these drawbacks. While some councils go to considerable lengths to
garner public interest and involvement in the development of city plans, this approach is not widespread.
The Commission heard that the public can find it hard to access current planning processes, with complex
planning documents identified as a major barrier to engagement. Some councils in New Zealand and
overseas are using innovative approaches when engaging with the community (such as neighbourhood plans
in Brisbane and representative surveys in Auckland), and are having more sophisticated conversations with
their communities about their cities futures and how to accommodate growth.
A greater role by central government in the planning process can also help rebalance the disproportionate
influence of local interest groups on the political and planning processes. The economic spillovers from local
government land regulation, and the inadequate local representation of those who bear the costs of those
decisions, means there is a case for greater government involvement in addressing those regulatory and
financing failures. Compared to other countries, central government has relatively little involvement in
planning matters (including a lack of national guidance). The Commission is seeking views on the merits of
following potential measures:
a National Policy Statement relating to the provision of adequate land for housing; and
expanding existing powers in the RMA to enable Ministers to direct changes to District Plans and
Regional Policy Statements that provide insufficient development capacity to meet population growth.
The Commission found evidence of land banking in many urban areas in New Zealand cities. Land banking is
the acquisition and holding of either greenfield or brownfield land, in anticipation of future price increases.
Land banking in the expectation of future price increases is only rational where land is scarce (because local
regulations restrict the supply of land for housing). Land banking is therefore a symptom, rather than a
primary cause, of land supply shortages.
The Commission has examined a number of policy settings that, at the margin, will incentivise landowners to
release and develop land. Two options have potential: setting Councils general rates based on land value,
and making Crown land liable for rates.
Council rates are a type of tax, and can influence landowners decisions about how they use their land. A
capital value rating system taxes the improvements on land, and so, at the margin, discourages owners
from developing land or intensifying development on it. By contrast, a land value rating system
encourages land to flow to its highest value use, including more and denser housing. The trend in recent
decades has been towards city councils abandoning land value rating in favour of capital value rating.
The arguments that support this shift in policy are not strong. The Commission considers setting general
rates on the basis of land value, rather than capital value, has potential benefits and invites further
information on this from inquiry participants.
Core Crown land is exempt from general rates. There appears to be no principled reason for this. Rating
Crown land would provide Crown agencies with the same incentives as private owners have to use land
or release it to those who will develop it. The Treasury, in consultation with the Department of Internal
Affairs, should investigate the possibility of removing the rating exemption on land owned by the core
Crown, including on land used for health and education purposes.
The case for an urban development authority

Given current regulations, there is little evidence that the market or existing government initiatives will
deliver the number of dwellings that are required in order to meet New Zealands, and particularly
Overview
Aucklands, growing population. This report has identified a range of actions that will improve the supply of
land and development capacity for housing. Even so, significant challenges remain, including:
the magnitude of the shortfall in dwellings in Auckland is not being eroded; rather, it is continuing to
grow;
the local political economy suggests that improvements to land use regulation, and a sufficient
commitment to infrastructure funding, will be difficult to realise; and
a real problem exists in enabling development to occur at scale.
Confronting these challenges will require a focussed, determined and substantive response that moves
beyond what has been done previously. This means a greater degree of publicly led development.
The development at Hobsonville will realise around 3 000 new dwellings, and will take more than a decade
to complete. But Auckland has an existing shortfall of as many as 32 000 dwellings, and requires a further
13 000 dwellings a year to accommodate new growth. This is the equivalent of eleven more Hobsonvilles
immediately, and a further four completed every year.
SHAs and Housing Accords seek to address one of the significant challenges identified in this report: slow
and overly restrictive planning processes. However, they do not address other significant barriers to largescale developments, including land assembly and infrastructure financing (Figure 2). The largest
developments in Auckland (Hobsonville, Three Kings and Stonefields) have been able to repurpose large
brownfield sites. But few such sites are left. Most greenfield landholdings are small and will not support
development on the scale required to address current shortfalls.
Large-scale developments offer a number of benefits, including the ability to generate economies of scale
that can drive down infrastructure and construction costs. Larger developments are also important to attract
overseas developers who may be better able to innovate and operate at scale. The Commission has found
major coordination failures in land assembly in New Zealand, especially in Auckland where greenfield and
brownfield land holdings are very fragmented. This inhibits large-scale developments in greenfield or
brownfield sites.
Figure 2
Barriers to resolving land supply problems
Barriers to resolving land

supply problems
Planning rules
and processes
Coordination to
enable scale
Infrastructure
funding
Compulsory acquisition of property by the state can be justified if it is in the public interest, and if
compensation for the property taken is just. Given the significant social and economic harms caused by the
current housing situation, a good case exists for compulsory acquisition powers to assist in the assembly of
sites for large, masterplanned developments. However, it should be noted that compulsory acquisition
powers can facilitate a negotiated sale, and often do not need to be exercised to be effective. The existence
of an agency with compulsory acquisition powers can encourage land owners to develop their land or sell it
to those that will.
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Where public action such as rezoning increases the value of land, a good case exists for the community to
capture some of the unearned value uplift that results from public action. Where councils rezone rural land
for urban use, large increases in value accrue to landowners. The community should have an expectation of
capturing at least some of that gain. At the same time, there is an apparent shortage of revenue, or lack of
willingness to use revenue tools that are available, to fund growth-enabling infrastructure. A number of value
capture mechanism were examined such as betterment levies, negotiated contributions and land value
increment taxes. But these mechanisms have had a chequered history in New Zealand and other countries,
and have proved challenging to implement and difficult to sustain.
The best option to capture the value uplift that results from public action such as upzoning is for a public
agency to participate in the land market. Such an agency would have the ability to acquire, hold and trade in
land. This has the potential to generate significant revenue that could be used to fund growth-enabling
infrastructure. An agency participating in the land market could purchase and release to developers
sufficiently large sites on a scale that would enable better planned, denser developments. It might also
increase the supply of land for development by private owners by reducing their expectations of future land
value increases.
The Commission considers that there is a place for an urban development authority (UDA), or multiple UDAs,
in New Zealand to lead and coordinate residential development at scale in both greenfield and brownfield
settings. A UDA would be a suitable vehicle for the use of compulsory acquisition to amalgamate parcels of
land for development and redevelopment, and for capturing the uplift in value that comes from upzoning,
coordinating infrastructure provision, and catalysing development on a scale required to address the
challenges identified in this report. UDAs can partner with private sector developers to remove regulatory
risk and bring land and dwellings to market. They can also support the development of a residential
construction sector that is able to operate on a scale that can generate efficiencies.
A UDA would require legislation to establish and give it powers, including compulsory acquisition. The
Commission is interested in hearing views on the important design features of such an UDA, the risks with
this approach, and how those risks can be managed.
Conclusion
Increasing the supply of land for housing is an integral component of addressing housing affordability
concerns. This report outlines a range of changes to reform land use rules, planning processes and local
incentives that will measurably improve that supply.
At the heart of the New Zealands housing affordability issues is a mismatch between local and national
interests. The growth of cities creates greater employment opportunities for individuals and can provide
productivity gains for the nation, but the costs of growth are felt most strongly by existing residents. These
residents may prefer to see cities grow at a slower rate than would be ideal for the nation. Some existing
residents especially homeowners benefit from restrictions on the supply of new housing, as these help
keep up house values. The Commission has identified a democratic deficit, where homeowners have a
disproportionate influence in local council processes, including elections and consultation. This creates a
wedge between local and national interests.
Resolving New Zealands land supply and housing affordability issues requires striking a new balance in the
planning system between local and national interests, and between protecting existing amenity and
enabling development rights. It will also require new institutions to unlock land for large-scale developments
to alleviate housing shortages and housing costs. A UDA could play an important role at the nexus of a
number of barriers to land supply that this report has identified (Figure 3).
Improving the supply of land for housing is the most important component of addressing affordability
concerns. It is not the only component of a comprehensive solution. This report has not considered the
capacity of the building industry to respond to increased availability of land and stronger incentives to use it
for dwellings, the quality of building regulation, the productivity of the construction sector or the cost of
building materials. As outlined in the Commissions 2012 Housing affordability report, these areas also have
Overview
a material impact on housing affordability. However, unless land supply is addressed any gains in these areas
are likely to accrue not to home-buyers, but to landowners.
Figure 3
How a UDA would address barriers to land supply

supply problems
Initiatives to address barriers

Housing Accords and
Special Housing Areas
(existing, but expiring)
Planning
rules and
processes
Coordination to
enable scale
Urban Development
Authority(ies)
operate here
Infrastructure
funding
Land
assembly
powers (new)
Value capture
approaches
(new)
Councils and their elected representatives also need to lead in persuading their communities of the benefits
of growth. These are difficult conversations. Facilitating growth requires communities to change, and change
is hard. Some people will lose from that change. But the community as a whole, and New Zealand, will
benefit from it. Growing cities provide their residents with increased amenity and substantial economic
opportunities. Councils need to lead better conversations about how growth is going to be accommodated
that include their whole community.
New Zealands fastest-growing cities need to accommodate their rising populations. This means allowing
them to grow out and up, and to become denser. Where councils and infrastructure providers try to tightly
manage where and when that growth occurs (and where it may not occur), they contribute to escalating land
costs. In turn, this encourages owners to withhold land, and forces builders to construct the most expensive
dwellings on sites that are available. The resulting shortage in housing causes a range of invidious social and
economic harms that hurt the wellbeing of individuals, families, communities and the nation.
This is a vicious cycle that must be addressed by unlocking land supply. No single or simple solution exists. A
number of changes, as outlined in this report, are necessary.
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About this inquiry
Key points
Housing is a basic human need and fundamental to our economic and social wellbeing. It plays a
central role in individual and community health, family stability and social cohesion, in the mobility
and responsiveness of the labour market, and in productivity and economic development.
Providing an adequate supply of land and development capacity for housing to meet demand,
across a range of housing choices, has the potential to lift the living standards of New Zealanders.
New Zealands population is growing. This growth is concentrated in a handful of cities, but
especially in Auckland. The number of dwellings required to house the population of these cities
will grow at an even greater rate because of demographic trends towards smaller households.
Housing supply has struggled to keep pace with increasing demand. This has manifested itself in
the price of houses, and the cost of housing, rising.
Planning systems and land regulations imposed by central, regional and local governments affect
the speed and efficiency with which land is made available for housing, including through more
intensive use of land within existing built-up areas. Constraints on the release of new residential
land and restrictions on the more intensive use of existing residential land create scarcity, limit
housing choice, and increase house prices.
An earlier report on Housing affordability by the Commission identified the role of constraints in the
land supply and development system as a critical driver of escalating house prices and affordability.
The Government has asked the Commission to review the local planning and development systems
across New Zealands faster-growing urban areas and identify leading practices that are effective in
making enough land available to meet housing demand. Recommendations to improve
performance of the land supply and development system are sought in four main areas:
-
policies, strategies, processes and outcomes for urban land supply, including the provision of
infrastructure;
funding and governance of water and transport infrastructure;
governance, transparency and accountability of the planning system; and
involvement and engagement with the community.
Unlocking land for housing is a critical first step and catalyst for productivity improvements in the
other parts of the housing supply pipeline by allowing scale economies in land assembly, land
development and housing construction. Evidence points to potentially significant reductions in the
cost of housing and wider economic benefits from lifting barriers and constraints to urban growth.
This inquiry explores the institutions, processes, policies and mechanisms used by local and central
governments, here and overseas, to respond to growth and expedite the release and development
of land for housing, and the obstacles that get in the way. Understanding the underling incentives
driving participants in the land supply and development system is critical to informing a spectrum
of possible improvements to the system ranging from incremental to more fundamental
institutional change.
Chapter 1 | About this inquiry
1.1
Introduction
New Zealands population is growing. This growth is concentrated in a handful of cities, but especially in
Auckland. The number of dwellings required to house the population of these cities will grow at an even
greater rate. Housing supply has been sluggish in responding to population growth and struggled to keep
pace with increasing demand. This has manifested itself in price of houses, and the cost of housing, rising.
Making sure that a range of choices of sufficient and affordable housing exists to accommodate this growth
is critically important to how our cities function and to the wellbeing of New Zealanders.
A lot of factors affect the supply of affordable housing, but one of the most important is the availability of
land. Section prices have grown more quickly than house prices over the last 20 years, indicating that
appreciating land prices have been a key driver of house price inflation in New Zealand (Figure 1.1). This
suggests a shortage of residential land in places where people want to live. Land price pressures have been
particularly acute in Auckland where land values now account for as much as 60% of the cost of total
property values, compared with 40% in the rest of New Zealand.
Figure 1.1
450 000
400 000
350 000
300 000
250 000
200 000
150 000
100 000
50 000
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Year
Source:
Auckland
Christchurch City
Hamilton City
Selwyn District
Tauranga City
Waikato District
Wellington City
Whangarei District
rest of NZ
An earlier report on Housing affordability (2012) by the Commission identified the role of constraints in the
land supply and development system as a critical driver of escalating house prices and affordability. Planning
systems and land regulations imposed by central, regional and local governments affect the speed and
efficiency with which land is made available for housing, including through more intensive use of land within
existing built-up areas. Important decisions about the amount of land to be released, the timing of when this
will happen, how the land can be developed, and when the land will be serviced with infrastructure, all
directly impact on the cost of housing. Constraints on the release of land and development capacity (within
and on the edge of cities) create scarcity, limit housing choice, and increase house prices. These impacts are
disproportionately felt in particular areas and by low- income groups.
It is desirable that the land supply and development system, and the housing market more broadly, work in
such a way as to maximise the options available for quality housing, including the full range of housing
typologies (e.g., apartments, townhouses, and standalone houses), for all New Zealanders regardless of
income, location or tenure choice. This means a land supply and development system that has both depth
and diversity.
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1.2
What the Commission has been asked to do
The Government has asked the Productivity Commission to undertake an inquiry into the supply of land and
development capacity for housing in New Zealand (Terms of Reference, p. iii). Specifically, the Commission is
asked to review the local planning and development systems across New Zealands faster-growing urban
areas and identify leading practices that are effective in making enough land available to meet housing
demand (see Box 1.1 for the Commissions definition of these systems). Comparable overseas systems are
also to be investigated where they provide valuable lessons for New Zealand.
Box 1.1
Local planning and development systems
For the purposes of this inquiry, the Commission has defined local planning and development
systems to include:
the legislative frameworks governing land use, the planning and funding of transport infrastructure
and services, and the planning and funding of infrastructure needed to make land viable for
housing (the Resource Management Act 1991, the Land Transport Management Act 2003 and the
Local Government Act 2002) these frameworks are described in Chapter 3;
the institutions, plans, policies, rules and pricing regimes that local authorities use to give effect to
these legislative frameworks; and
the internal processes that local authorities use to carry out their responsibilities, rules and policies.
A number of factors affect the supply of development capacity (Figure 1.2).

Figure 1.2
What contributes to the supply of development capacity?

Land sources
Land use
Infill: the creation of new dwelling
opportunities through the use of spare
land on existing residential sections
Brownfield land: the ability

to convert land that was
previously used for
industrial or commercial
purposes to housing
Greenfield land: the

ability to supply new,
previously undeveloped
sections onto the market
Redevelopment: the replacement of

an existing dwelling with one or more
new dwellings on the same section
Height and size rules: the extent to which

landowners or developers are able to build
up or vary the sizes of lots or dwellings
Other infrastructure or regulatory requirements:

the extent to which land use is constrained by
other regulations (eg, a requirement to put a
portion of land aside for parks or reserve) or the
requirements of infrastructure providers
In reviewing the planning and development systems, the Commission has been asked to see how they
deliver an adequate effective supply of development capacity for housing. The Commission has defined
development capacity to mean land that is shovel ready for building housing and that can be
developed to meet a range of market demands (housing typologies, location, quality and price). This reflects
the Commissions findings in its Housing affordability inquiry that both greenfield and brownfield land are
necessary and that increased density, especially near key city nodes, is an integral part of accommodating
population growth (NZPC, 2012). It also reflects the conclusions of scholars such as Bertaud (2014a, p. 5), who
argue that the amount of floor space that can be built on a unit of land isa crucial variable for the fair
and effective functioning of cities.
The Government asked the Commission to make recommendations on improving the performance of the
land supply and development system in four main areas:
policies, strategies, processes and outcomes for urban land supply, including the provision of
infrastructure;
funding and governance of water and transport infrastructure;
governance, transparency and accountability of the planning system; and
involvement and engagement with the community.
The inquirys Terms of Reference also asks the Commission to identify any early lessons from recent
initiatives such as the introduction of Housing Accords and Special Housing Areas (a policy that aims to
expedite housing supply in specific high-growth areas).
1.3
What this inquiry is not about
A number of issues are outside the scope of this inquiry. In particular, this inquiry:
does not review the fundamental role or purpose of the Resource Management Act 1991;
does not include the Building Act 2004 or related processes governing the assessment and processing of
building consent applications; and
does not consider changes to the ownership of local authority infrastructure assets, but does include the
funding and governance of those assets (eg, the implications of whether or not assets are held by a
legally separate, but wholly owned entity).
1.4
Why this inquiry is important
Housing is a basic human need and fundamental to our economic and social wellbeing. It plays a central role
in individual and community health, family stability and social cohesion, in the mobility and responsiveness of
the labour market, and in productivity and economic development (Chapter 2). Providing an adequate
supply of land and development capacity for housing, and the associated improvement in housing
affordability, has the potential to lift the living standards of many New Zealanders.
Unlocking land for housing is a necessary first step and catalyst for productivity improvements in the other
parts of the housing supply pipeline by allowing economies in land assembly, land development and
housing construction. Larger building firms are able to generate scale efficiency from building large numbers
of houses on the same site and purchasing at a greater scale, particularly building materials. Yet the building
industry in New Zealand is characterised by small firms that build just one or two houses a year. This pushes
up new house prices, because small firms are unable to generate economies of scale. The current industry
structure is a product of the environment in which it operates, which is characterised by a fragmented and
expensive land supply (NZPC, 2012).
A recent report by the McKinsey Global Institute concludes that unlocking land supply at the right location
is the most critical step in providing affordable housing (2014, p. 7). The report estimates that unlocking
land supply could reduce the annualised cost of a standard unit of housing by between 8% and 23%.
Remarkably, in the worlds least affordable cities (including Auckland), unlocking land supply could reduce
the cost of housing by between 31% and 47%. Further, the report says that productivity improvements in
construction, by taking advantages of scale or taking an industrial approach to construction, could reduce
the cost of housing by between a further 12% and 16%.
Local regulatory constraints to releasing land and development capacity for housing have national and
economy-wide impacts (Chapter 2). Overseas research suggests that releasing adequate land and
development capacity through lifting barriers to urban growth could raise a countrys Gross Domestic
Product by as much as 9.5% (see Hsieh & Moretti, 2015). Many of the productivity gains are from workers
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being able to locate and work in cities that offer higher productivity and higher-wage jobs. It is difficult to
think of many other policies that would yield such an improvement in the national economy.
1.5
Approach to the inquiry
This inquiry investigates and seeks improvements to the effectiveness and efficiency of the planning and
development system in New Zealand. How well does the system meet the demand for land in its most
valued use and supply infrastructure efficiently and in a way that is responsive to demand? Can the current
system be made to work better for New Zealanders or is a different institutional framework required to deal
with the complexity, negative effects and coordination problems faced by our fastest-growing cities?
A spectrum of possible improvements exists, ranging from incremental to more fundamental institutional
change. A number of criteria are used to help evaluate how the planning and development system is
performing and any potential areas for improvement. A well-performing land supply and development
system exhibits the following features:
the incentives on various actors in the system (eg, existing homeowners, landowners, councils,
developers, and infrastructure providers) are aligned so as to make available a sufficient quantity of land
for housing;
the objectives of land use planning are clear, and any restrictions on choice are the minimum necessary
to achieve those objectives;
the whole planning and development system is sufficiently coordinated and integrated to overcome any
coordination failures and to ensure that infrastructure and development are aligned;
the process for setting urban planning rules/restrictions reflects the broad interest of the community and
the country as a whole, not just those of vested interests;
the planning and development system has good governance arrangements, where decisions are made
at the right level, strong accountability frameworks are in place and decision review mechanisms are
appropriate;
the governance and funding mechanisms allow adequate land to be serviced with infrastructure, at the
right time and in the right place; and
land planning and development policies and decisions are transparent and provide a reasonable level of
certainty for all parties about future intentions.
The land supply and development system is complex. It includes land zoning and planning institutions
policies and processes; rules and regulations; approval processes; infrastructure planning, delivery, and
funding; and governance arrangements. A diverse range of participants operate within this system, each with
their own set of objectives, incentives and behaviours. This includes local government politicians, council
planners, developers, infrastructure providers, landowners, homeowners, and central government agencies.
This inquiry investigates the underling incentives driving participants in the land supply and development
system by identifying instances where these incentives diverge and conflict, and asking how they can be
better aligned and shaped to encourage the release and development of land for housing.
The approach to the inquiry laid out above provides a strong basis for making system improvements through
enhanced processes, leading practices and institutional change.
A focus on high-growth cities

The inquirys Terms of Reference ask the Commission to review practices of the larger urban planning and
development systems, including but not limited to the authorities of the largest and/or fastest-growing
urban areas.
New Zealand has two types of local government structures: regional councils and territorial authorities.
Territorial authorities are further broken down into three types: city, district and unitary authorities. A unitary
authority is a city or district council that also has the functions of a regional council (Figure 1.3).
Figure 1.3
Types of local authorities
78 Local authorities
11 Regional councils
67 Territorial authorities
54 District councils
6 Unitary authorities
12 City councils
Note:
Auckland is a unitary authority and a territorial authority but it is not a city council or a district council.
New Zealand has experienced relatively high population growth over the past decade (Figure 1.4), much of it
concentrated in urban areas. New Zealands natural population growth has been strong (among the fastest
growing in the OECD since 2000), while migration flows have been highly variable and often focused on
Auckland. Inward migration has been particularly strong in recent years.
Figure 1.4
Source:
Average annual absolute population growth
Productivity Commission analysis of Statistics New Zealand data.
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Population growth has been unequally distributed across the country, largely as a result of internal migration
patterns and the regional preferences of international migrants. Some regions have consistently experienced
positive net internal migration, while others have generally experienced net outflows. Demographic change,
such as population ageing, cultural and ethnic diversification and a continuing transformation in family
structures, have also been a feature of recent years and have tended to segment the housing market
(NZPC, 2012). Looking to the future, net household formation in New Zealand is expected to continue to
increase even faster than the population continues to grow, as households become yet smaller. More land
and development capacity for housing will be needed, to provide a range of dwelling sizes and typologies.
The focus of this inquiry is on the 10 territorial authorities that have seen the largest population increase
between 2001 and 2013, and their associated regional councils (Table 1.1). Together these 10 territorial
authorities made up about 78% of New Zealands population growth between 2001 and 2013.
Table 1.1
Territorial authorities that the Commission studied
Territorial authority
Auckland Council*
Tauranga City Council*
Christchurch City Council*
Waikato District Council
Hamilton City Council*
Waimakariri District Council*
Queenstown Lakes District Council*
Wellington City Council*
Selwyn District Council*
Whangarei District Council
Regional council
Bay of Plenty Regional Council
Northland Regional Council
Environment Canterbury Regional Council
Otago Regional Council
Greater Wellington Regional Council
Waikato Regional Council
* indicates that the territorial authority has been designated as an area experiencing significant housing supply or affordability issues by
being listed in Schedule 1 of the Housing Accords and Special Housing Areas Act 2013..
However, the lessons in this report also apply to other growing territorial authorities, especially those with
relatively unaffordable local housing markets.
Auckland and the rest

Auckland is both New Zealands largest and most expensive city (in terms of housing costs relative to
incomes). Auckland is also growing rapidly, and by the year 2031 is expected to be home to about 2 million
people, or nearly 40% of New Zealands population. Recent debate on the performance of the housing
market has focused primarily on Auckland, as this is where supply constraints and associated house price
increases have been most dramatic, and on Canterbury as it rebuilds.
Notably, of the territorial authorities that experienced population growth from 2001 to 2013, almost half of
that growth was in Auckland more than the next 28 fastest-growing territorial authorities combined.
Auckland is also expected to have the highest growth rate in household formation.
In December 2012, Auckland Council estimated an existing shortfall of between 20 000 and 30 000 dwellings,
and a need for a further 13 000 dwellings each year. Even using the councils conservative estimate of the
shortfall (in line with other estimates), 46 000 new homes were needed by the end of 2014. From 2012 to
2014, only 14 052 dwellings were consented in the city. This is about half of what the council estimates is
required just to accommodate new demand. In the meantime, the shortfall of dwellings in Auckland is
continuing to grow (Figure 1.5).
If new dwellings in Auckland grow by about 8 000 a year in the future, which is higher than in any year since
2005, by 2020 the shortfall will grow to about 60 000. Auckland Councils record of developers current plans,
from the Forward Land-use Infrastructure Programme (FLIP), suggests that developers are not planning to
build dwellings at a rate that will erode the shortfall. The ambitious new dwelling targets in the Auckland
Housing Accord, if met, would erode the backlog, but would still leave Auckland 26 500 dwellings short by
the end of 2016. Each year that this shortfall continues is likely to result in additional pent-up demand,
meaning that the average number of new dwellings required to meet demand will increase.
Figure 1.5
Building consents and projected housing demand in Auckland
140 000
120 000
100 000
80 000
60 000
40 000
20 000
0
2012
2013
2014
2015
2016
2017
2018
2019
2020
Cumulative dwellings required
Actual cumulative dwellings consented
Forecast at 8000 a year
Cumulative developers' known plans (from FLIP)
Auckland Housing Accord Target
Source:
Productivity Commission based on Auckland Council data.
The problems with the operation of the land supply and development system, and the housing market more
broadly, are widespread. Although recent price growth in other regions has been subdued in comparison to
Auckland, median house prices as a ratio of median incomes are high across New Zealand and especially in
cities. Indeed, the Housing Accords and Special Housing Areas Act 2013 (HASHA Act) lists, in Schedule 1,
those territorial authorities that are designated as areas experiencing significant housing supply or
affordability issues. Broad mismatches exist between the supply of, and demand for, different types of
housing. In particular, the country currently lacks lower-priced new dwellings (MBIE, 2014a; NZPC, 2012).
Christchurch is a special case worth noting. Destruction of housing stock from the earthquake created a
shock shortage of adequate housing. That said, it is notable that the Canterbury rebuild appears to be on
track to provide a sufficient supply of housing to meet demand in the near future. This illustrates what a
resolute and coordinated effort to increase the supply of dwellings in cities can achieve.
Gathering evidence
The Commissions draft findings and recommendations have been informed by a comprehensive
engagement process. This began with the release of the inquiry Issues Paper in November 2014, which
received 75 submissions from a diverse range of interested parties. At the same time, 108 engagement
meetings were undertaken with interested parties (offering a range of perspectives) on the performance of
the land supply and development system and how to improve it. Participants included councils, developers,
building companies, infrastructure providers, planners, central government agencies, and housing
academics. (See appendix 1 for a list of submission and engagement meetings.)
The Terms of Reference asks the Commission to review practices of comparable overseas regimes and urban
planning and development regimes and to identify lessons. In addition to desk-top research investigating
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overseas planning and development practices, a study tour of Australian states was undertaken. This
included visits to Melbourne, Sydney and Brisbane, for meetings with relevant planning and development
agencies, city councils (Brisbane/Melbourne), developers/builders, property councils, the Reserve Bank of
Australia, and leading urban planning academics and experts (including the former Chairman of the National
Housing Supply Council).
Staff participated in a study tour of the United Kingdom (London and Manchester) organised by the
New Zealand Council for Infrastructure Development and UK Trade & Investment. The aim of the study tour
was to identify best practice planning, funding and delivery of infrastructure. It included sessions on urban
regeneration, affordable housing, planning systems, and transport infrastructure (planning, governance and
funding). An impressive line-up of speakers, presentations and site visits was provided.
The Commission engaged the New Zealand Institute of Economic Research (NZIER) to survey the 10 highgrowth local authorities to get a sense of the comparative stringency of land use regulation in New Zealand.
Using a well-established survey methodology, the results were converted into an index that follows the
Wharton Residential Land Use Regulatory Index methodology developed at the well-regarded University
of Pennsylvanias Wharton School. This index helped provide an initial overall picture of both the level of
stringency in urban land use planning and development in New Zealand high-growth councils and some of
the underlying influences and drivers.
Finally, the large volume of literature on the economics of urbanisation, economic geography, and urban
planning and infrastructure was examined.
Together, this evidence has provided a rich picture of the land supply and development system in
New Zealand, the barriers and blockages in this system and the key areas for improvement.
1.6
Guide to the report
This inquiry explores the institutions, processes, policies and mechanisms used by local and central
governments, here and overseas, to respond to growth and expedite the release and development of land
for housing, and the obstacles that get in the way.
Chapter 2 considers the benefits that large cities can bring to their residents and to the country as a whole,
and the costs of artificially controlling the growth of those cities. The influences that determine the shape
and size of our cities, the types of dwellings that are built and where people choose to locate are examined.
The chapter presents new data on the growth of New Zealand cities and discusses the distributional and
economic impacts of local land use polices.
Chapter 3 looks at the processes that New Zealand local authorities use to link decisions about land use with
the provision of infrastructure and other services, such as transport.
Chapter 4 explores the strategies for, and barriers to, the supply of land for housing and its prompt release.
The chapter also considers the process of rezoning land for housing in fast-growing New Zealand areas.
Chapter 5 investigates the extent that land use regulations enable or inhibit the development of land for
housing in New Zealand cities, looks at some underlying causes of those restrictions, and proposes some
responses. The chapter also considers the role of inclusionary housing policies in planning systems.
Chapter 6 examines the infrastructure requirements and costs associated with new growth and processes
that councils use to plan the rollout of new infrastructure. How councils manage and make use of existing
infrastructure assets is also examined.
Chapter 7 examines how councils currently pay for infrastructure and what alternatives are available.
Chapter 8 considers the governance arrangements for infrastructure and looks at the use of council
controlled organisations for water and transport infrastructure.
Chapter 9 discusses some of the forces that influence the attitudes and actions of landowners, homeowners
and councils towards the supply of new housing and land for housing. It also considers options to align their
incentives to encourage the release and development of land for housing.
Finally, Chapter 10 considers whether there is a role for new institutions to coordinate the release and
development of land for housing, and fund growth-enabling infrastructure, so as to address current
pressures.
25
26
Cities, growth, and land for housing
Key points
Cities are national assets. When cities function well, they provide greater choices of employment,
more opportunities for specialisation and have higher incomes and productivity than other areas.
The concentration of people and businesses in cities also creates costs, such as pressure on
infrastructure and on the availability and cost of housing. This puts a premium on good city
organisation and the ability to effectively plan for growth.
There are longstanding concerns about the ability of New Zealand planning systems to respond to
the need for new housing, and about the extent of constraints placed on development.
There does not appear to be an optimal city size after which the costs of urban life outweigh the
benefits. However, the optimal city size from the perspective of the nation may be different from
the perspective of local residents. This can create situations where local residents want cities to
grow more slowly, or be smaller, than would be ideal for the nation.
Economic models describe how cities respond to population growth and policy interventions such
as land use regulations or investment in transport infrastructure. In the absence of constraints,
population growth would lead to higher land prices closer to the city centre (where amenity value is
highest). This prompts developers to economise on the use of land at the centre by increasing
density building more dwellings on each unit of land and building more multi-storey buildings
and smaller dwellings.
New Zealand cities have differing intensification profiles. Some cities have seen significant
intensification close to the city centre, in line with economic theory. But in other cities the biggest
contribution to intensification has occurred in outlying suburbs, suggesting that there are barriers
to the efficient use of land.
A survey of fast-growing New Zealand councils found universally strong land use rules, but
considerable variation in the overall stringency of land use regulation. This variation was due in
large part to differing levels of influence over planning by the courts, regional councils and
community groups, and differences in the time taken to get approvals for development.
Land prices in major New Zealand cities and high-growth areas increased significantly in the middle
of the last decade, both in nominal terms and as a share of total property values. High land prices
encourage the production of larger and more expensive housing. In New Zealand, the average size
of new dwellings has increased by more than 50% since 1989. More than half of the new builds in
New Zealand in 2014 were valued in the upper quartile of all housing stock, driven by the price of
land.
The current tendency of the New Zealand housing market to produce larger, more expensive
dwellings is likely to be increasingly at odds with demographic trends, with the average size of
households forecast to shrink over the next 20 years.
Constraints on the use of land for housing push up housing prices, and have a disproportionate
impact on the less well-off members of the community. The current situation presents risks to
macroeconomic stability, puts pressure on public finances, creates barriers to labour market
mobility, limits opportunities for agglomeration economies and associated productivity gains, and
increases wealth inequality. Limits on the ability of cities to grow and evolve in response to
population growth affect the wellbeing of current and future generations of New Zealanders.
Chapter 2 | Cities, growth, and land for housing
2.1
Introduction
The greatest pressure on the supply of land for housing is in our cities. Over the next few decades the
population of some New Zealand cities is projected to grow significantly. What is so attractive about cities
that people want to live and work there? Why would we want to ensure that planning and development
systems deliver an adequate supply of development capacity for housing (the Commissions terms of
reference) to meet this demand?
In 1881 New Zealand was a predominantly rural country, but by 1916 the urban population exceeded the
rural population and our cities continued to grow apace. Today, New Zealand is one of the most highly
urbanised countries in the world, with about 86% of New Zealanders living in urban areas. 2 That said,
New Zealand has only one city of significant size. Aucklands population was around 1.42 million people in
2013, a little under three times bigger than the population of the greater Wellington region, but still much
smaller than either Sydney (4.37 million) or Melbourne (4.18 million) in 2013.
The notion that cities are beneficial was once an uncommon view. The Statistics New Zealand publication
New Zealand: An urban/rural profile noted the consternation that greeted the realisation in the early
twentieth century that the population was no longer predominantly rural:
Newspapers raised fears about urban corruption and decay as the population lost their hardy
pioneering spirit and became softened by the experience of urban living. In 1923, the prominent
educationalist, Professor James Shelley, wrote that children should not be educated in the town I do
not think you realise how destructive it is (Goodyear, 1998, p. 51). In response, sports such as rugby
increased in popularity as a suitable medium to toughen young men and inculcate them with suitable
values. None of these fears slowed the inexorable march towards an increasingly urbanised and
eventually sophisticated nation. (Statistics New Zealand, 2004, p. 10)
The desire to preserve the beneficial characteristics of rural life not only influenced education policy but
housing policy as well. Prime Minister Peter Fraser, when looking at models for state housing in the 1940s,
was dismayed when shown a multi-block apartment in Berhampore in Wellington, declaring I hope it will be
the last (Goodyear, 1998, p. 52). The preference instead was for a suburban house building programme in
the Hutt Valley.
This chapter considers the benefits that large cities can bring to their residents and to the country as a
whole, and the costs of artificially controlling their growth. It explains the influences that determine the
shape and size of our cities, the types of dwellings that are built and where people choose to locate. It
presents a simple model to show how cities that are unconstrained respond to population growth by
economising on the use of land, and it looks at the impact of local regulatory and infrastructure policies on
land use. The chapter then investigates the factors that serve to constrain the development of new housing
in response to an increase in demand. It presents new data on the growth of New Zealand cities and
discusses the distributional and economic impacts of local land-use policies.
2.2
The benefits and the costs of cities
Why do urban areas exist? Edwin Mills, a founder of urban economic analysis, says that the simplest answer
is the correct answer. Urban areas exist because proximity among diverse economic activities economises on
the cost of moving goods, people and messages (Mills, 2000, p. 8). Urban economist Edward Glaeser writes
in Triumph of the City:
The strength that comes from human collaboration is the central truth behind civilizations success and
the primary reason why cities exist. (Glaeser, 2011, p. 15)
The benefits of agglomeration

When firms are located in close proximity to each other, they can take advantage of the benefits that come
from having access to a wider pool of skilled labour, better links to markets for inputs and outputs, and the
ability to share knowledge (Lewis & Stillman, 2005; Mare & Graham, 2009). These benefits are known as
2
The population of rural areas has increased very little since the early twentieth century. The rural population was 501 258 in 1916 and 532 740 in 2001.
27
agglomeration economies. 3 In modern economies, the sharing of knowledge is particularly important.

Glaeser and Gottlieb (2009) found that while some manufacturing firms still cluster to reduce the costs of
moving goods, the most important factor driving greater density is the role that proximity plays in speeding
the flow of ideas.
For people, larger cities provide a greater choice of employment and more specialised employment
(Bertaud, 2014b). People who live in cities are able to be more productive workers and they earn, on
average, higher wages. The benefits of being in a more productive environment dont just happen on
arriving in a city; workers in cities also experience consistently higher wage levels over time. This seems to be
because workers can take advantage of training, networks and knowledge sharing while living in a large city.
The benefits from the improved flow of ideas accrue to workers as much as they do to firms. Even when
workers move away from a larger city to a smaller city, their big city experience is still reflected in their
earnings (OECD, 2014).
The higher productivity of New Zealands biggest cities Auckland, Wellington and Christchurch
compared to the rest of the country is seen in Figure 2.1. This is partly due to the composition of the
industries that are located in cities and partly due to higher labour productivity within these industries.
Source:
Labour productivity in selected NZ cities, compared to the rest of New Zealand
50
Percentage more or less than rest of NZ
Figure 2.1
30
10
-10
-30
-50
-70
28
Auckland
50
30
10
-10
-30
-50
-70
Wellington
Key
50
Manufacturing
30
Electricity, gas, water and waste services
Construction
10
Wholesale trade
-10
Retail trade and accommodation
-30
Information media & telecommunications
Transport, postal and warehousing
Financial and insurance services
-50
Rental, hiring and real estate services
-70
Christchurch
Professional, scientific, technical, administration

and support services
Arts, recreation and other services
Agglomeration economies are not the same as the economies of scale and scope, which are internal to firms (Mills, 2000).

Notes:
1. The bar charts measure median labour productivity across firms in 2012 (percentage more or less than the median labour
productivity of the rest of New Zealand ie, excluding Auckland, Wellington and Christchurch) on the vertical axis, with industries
on the horizontal axis.
2. New Zealand has no regional price deflators, so part of the higher labour productivity in urban areas is due to higher prices in urban
areas.
3. The chart does not include Mining, Agriculture, Forestry or Fishing, as the number of firms involved in these activities in Auckland,
Wellington and Christchurch is small.
Cities are not only places where people work; they are also places where they learn, consume goods and
services, and play. Larger urban areas offer more recreational and cultural amenities, shops, restaurants and
educational opportunities than smaller centres and rural areas. Cities may also provide better quality
infrastructure. The Australian Productivity Commission (APC) has found that social and economic
infrastructure featured heavily in peoples responses to surveys about where they choose to live and work in
Australia (APC, 2014).
Glaeser (2011) argues that people who live in US cities are often also healthier, wealthier and better
educated than people who live in rural areas. In New Zealand, the differences between rural and urban areas
are less stark (Figure 2.2), probably reflecting the influence of national welfare and health systems.
Figure 2.2
Amenity in urban and rural areas
Urban
Rural
Internet
access
Health
service
utilisation
Wellington &
Auckland had
the highest
proportion of
connections
at 85% of all
households.
Two-thirds of
rural
households
had a
broadband
connection in
2012.
Females in
main urban
areas in 2003
were
significantly
more likely to
have had
unmet need
for a GP
in the last year
than females
in true rural
areas.
Drinking
water
supply
standards
Water quality
standards
were highest
in the larger
supply areas
and lowest in
the small
supply areas in
2013.
Source:
Statistics New Zealand, 2013; Ministry of Health, 2007; Ministry of Health, 2014.
Note:
The terms main urban and true rural used in the chart are Statistics New Zealand classifications.
Opportunities
for study
Main urban
areas had the
largest
proportion of
people
studying for
20 or more
hours a week
in 2001.
The spillover benefits of large cities

The higher productivity, incomes and amenity found in large cities are important for their residents, but cities
also affect the prosperity and wellbeing of surrounding regions. The OECD (2014) reports that regions that
include large metropolitan areas of more than half a million inhabitants grew by approximately 0.2
percentage points faster each year between 1995 and 2010 than those that did not. More generally, the
population density of the most densely populated parts of a region is a very good predictor of per capita
regional Gross Domestic Product (GDP) growth (OECD, 2014). And while positive spillovers decline with
distance, large cities of 2 million inhabitants can benefit the economic performance of regions up to 300 kms
away (OECD, 2014).
Agglomeration costs
While cities provide benefits to the people who live there and, through their productivity, to surrounding
regions, growing cities also create more negative externalities as more firms and more people put pressure
on a citys infrastructure.
29
30
The pressure on transport infrastructure is readily observed, but other infrastructure, such as waste water
treatment and the management of stormwater, can come under significant pressure too. When infrastructure
is under pressure, the costs are borne by a citys residents either as negative effects traffic congestion or an
increased risk of flooding or in the costs of upgrades or extensions to meet the increased demands on the
citys infrastructure systems.
These costs detract from the benefits of city life. Roads become congested and commutes are longer. 4 But
while commuting time invariably increases with city size, some cities handle the flow of traffic better than
others. How a city manages will depend on its pattern of land use, such as whether jobs are located in the
city centre (a mono-centric urban form) or are dispersed across different locations (poly-centric urban form)
and the transport policies it adopts. Of New Zealand cities, employment is relatively decentralised in
Auckland, with only 13% of employment located in the central business district (CBD) in 2011, while 55% of
employment in Wellington is in the CBD. The difference between these two cities results in very different
transport infrastructure requirements. Poorly organised cities not only impose costs on residents; they can
also lead to a loss of potential agglomeration benefits. Firms cannot take advantage of a wider pool of
workers available in a big city if the costs and time of getting to work or the lack of coordinated public
transport infrastructure limit the areas in which people seek work. Ahrend and Lembcke (2015) note that
some large cities are actually just smaller fragmented labour markets.
The higher costs of housing, and the higher cost of living in cities more generally, are also an impediment to
labour market mobility, dampening the incentive to move provided by higher wages. 5 Clearly, high relative
earnings and employment opportunities, along with other amenities, encourage migration to a region, while
higher relative housing prices discourage it (Muellbauer & Murphy, 2008). Cities differ in how they respond
to the challenge of accommodating growth. This can have a major influence on the price of housing. For
example, restrictions on building in existing inner suburbs increase prices and encourage movement to
urban fringe locations, even though transport options tend to be more limited on the city fringe and fewer
jobs are within easy reach.
Is there an optimal city size?

Is there an optimal city size after which the costs of urban life simply outweigh the agglomeration benefits?
This is not an easy question to answer and has been the subject of debate among economists and
geographers since the 1960s. Several important issues must be considered. First, the optimal city size is not
fixed because costs and benefits change over time. For example, Glaeser and Kohlhase (2003) find that
transport costs have declined in real terms by up to 90% in the United States, altering the cost-benefit
calculation in the locational choice of firms and households.
Second, the optimal city size from the perspective of the nation as a whole will differ from the optimal city
size from the perspective of the citys resident population:
The optimal population will differ according to whether a national or a local viewpoint is assumed.
(Alonso, 1971, p. 72)
As Camagni, Capello and Caragliu (2013) explain, the optimal size from the perspective of the national
economy is when the city makes its maximum possible net contribution to national income and should be
assumed as a target by a national government interested in efficiency of the urban system (p. 311). The
optimal city size, from the point of view of the population already located in the city, is when the difference
between local agglomeration benefits and local costs is maximised.
The decisions that a city makes about its growth may therefore be at odds with the interests of central
government in maximising the benefits to the economy of a larger city size. Combes, Duranton and Gobillon
(2012) observe that many cities actively restrict growth because their focus is local and they are concerned
It is also commonly thought that cities generate more pollution than rural areas. However, more densely populated cities that dont rely on private
automobiles have lower energy use than more spread-out cities or rural areas (Glaeser, 2011). The wealthier a city becomes, the more environmentally
friendly it becomes as well. This is because, as incomes rise, people demand cleaner air and water. They also demand more environmentally friendly goods
and services and support greater regulation to protect the environment.
The main reason for the higher prices of goods and services in urban areas is that businesses have to pay higher prices for their inputs such as rents and
wages, although higher prices can also reflect the higher quality of the goods and services that can be bought in bigger cities. The more competitive
environment found in cities also works to squeeze profit margins, partially offsetting higher prices (OECD, 2014).
about population growth imposing large costs to already established residents by bidding up housing
prices and crowding out the roads (p. 1). However, in a challenge to the view that increasing population
imposes large costs on cities, the authors find that, at least for French cities, the costs of having larger cities
are modest and are of the same magnitude as agglomeration economies. Much work remains in
understanding the costs and benefits of agglomeration, how these are related to city size, and where the
benefits of agglomeration accrue and where the costs fall.
Third, as noted above, city policies can increase or reduce agglomeration costs. Bertaud (2014b) argues that
the fundamental challenge for city authorities is to reduce the negative externalities associated with
agglomeration in their cities, without destroying the wealth that agglomeration creates:
To do that, they must plan and design infrastructure and regulations while leaving intact the selforganizing created by land and labor markets. (p. 2)
Capturing the productivity benefits that large and growing cities offer their residents and the wider economy
puts a premium on good city organisation and infrastructure planning, including the delivery of an adequate
supply of development capacity for housing.
F2.1
2.3
The optimal city size from the perspective of the nation may be different from the
perspective of local residents.
A framework for understanding the impact of city policies
Peoples housing choices are determined by their preferences and their incomes. While the demand for
housing and its supply is determined in a private market of willing buyers and sellers, the quantity, type and
location of available housing is shaped by a citys local land use and infrastructure polices. This section looks
at the impact of -city policies on the market for land and housing.
The demand for space and for amenity

As incomes rise, people tend to demand more private space bigger houses and more land or garden
space are generally found further away from city centres. However, rising incomes also leads people to
demand greater public amenity they want to live closer to the attractive areas of cities and closer to jobs
and educational opportunities. There is an inherent trade-off for city dwellers between more private space
and the benefits of more public amenity (Cheshire, Nathan & Overman, 2014).
Amenity (for example, the proximity of a public open space) and dis-amenity (such as proximity to a noisy
road) are reflected in housing prices. A number of studies have attempted to measure the value of different
amenities and the effect on house prices (eg, Cheshire & Sheppard (1998) and Gibbons, Mourato & Resende
(2014) in the United Kingdom; Walsh, Milon & Scrogin, (2011) and Netusil, Chattopadhyay & Kovacs (2010) in
the United States; and Pearson, Tisdell & Lisle (2002) in Australia).
These studies use housing market transactions to infer the implicit value of a propertys underlying
characteristics by separating out the structural attributes of a property from locational characteristics such as
accessibility to amenities. The attributes that people value varies between countries and between cities, but
the valued attribute can have a marked impact on housing prices. And as the distance from the valued
attribute increases, prices fall.
For example, Gibbons, Mourato and Resende (2014) write about the value of properties near churches with
steeples in England:
Distance to churches (those classified as having steeples or towers on Ordnance Survey maps) also
comes out as important, with 1 km increase in distance associated with a large 4.2% fall in prices, worth
about 8,150. This figure may be best interpreted as a valuation of the places with which churches are
associated traditional parts of town centres, focal points for businesses and retail, etc. rather than a
valuation of specifically church-related amenities and spiritual values. However, the environmental
amenities provided by church grounds and architectural values of traditional churches could arguably
also be relevant factors. (p. 191)
31
32
Improvements to local infrastructure can also increase amenity, which is then capitalised into housing prices.
For example, Grimes and Young (2010) estimated that house prices adjacent to New Lynn station rose by
3.5% following the announcement in 2005 of upgrades to the Western Line of Aucklands passenger rail
network including electrification, double tracking, and upgrades to the station that involved moving
sections of the line underground. The effect on prices decayed over distance and was not observed from a
distance of about 8 km.
In summary, attractive areas within cities attract large premiums because of their proximity to highly valued
amenities. Further away from these sought-after areas, housing prices are cheaper, reflecting their relative
distance from valued amenities, including employment. But moving further out inevitably incurs the
additional costs of and time spent commuting.
The housing cost/commute cost trade-off

Households location choices and the resulting shape and size of cities were examined in the 1960s and 70s
by Alonso (1964), Muth (1969) and Mills (1972). What has become known as the Alonso-Muth-Mills model
describes the trade-offs households make about where to live based on the relative costs of housing and the
time and cost of transport to work (Box 2.1).
Box 2.1
The basic Alonso-Muth-Mills model
The basic Alonso-Muth-Mills model assumes a city with a given population and income level living
around a central business district (CBD). Each worker travels into the city centre for work. Since
commuting is costly both in money and time, and increases with distance from the CBD, households
would choose, other things equal, to live closer to the city centre. But not everyone can live close to the
city centre, so the price and density of housing adjust to clear the market. In particular, land for housing
becomes more expensive closer to the CBD, which prompts developers to economise on the use of
land by building more dwellings on each unit of land, by building multi-storey buildings and smaller
dwellings. (There is a trade-off involved, as the cost of an additional square metre rises with building
height.) Households then choose whether to live in well-located yet smaller and more expensive
housing, or in more distant yet larger and less expensive housing towards the city fringe. The city
structure is characterised by higher density and taller buildings close to the CBD and lower density and
building heights on the fringe. The overall size of the city will be determined simultaneously by the size
of the population, the cost of transport and the value of land in alternative uses.
Note:
Although the model assumes a mono-centric urban form, the model has been found to be remarkably robust,
explaining the spatial pattern of settlement in many cities.
Source:
Kulish, Richards & Gillitzer, 2012.
In 2011 the Reserve Bank of Australia developed and calibrated a version of an Alonso-Muth-Mills model to
compare housing prices and the spatial distribution of five large Australian cities. The paper was published
by the authors, Kulish, Richards and Gillitzer (2012). The model has also been used to compare Auckland with
the Australian cities (NZIER, 2014a).
The model demonstrates that when cities are unconstrained, as the distance from the CBD increases,
dwelling sizes increase while land prices, housing prices, building height and density all decrease. Given the
citys population and the density at different distances to the city, it is possible to calculate a curve that
shows, at every distance from the CBD, the total number of residents who live at specific distances from the
centre (Figure 2.3).
An unconstrained urban equilibrium baseline model
600
60
400
30
200
Density
Building height
15
15000
10
10000
5000
(Rental) price of
land
320
Population
240
2000
1500
City
size
160
1000
80
0
500
0
15
30
15
30
(m2)
90
800
(persons/km2)
($/m2)
(~ storeys)
($000/hectare,
annually)
Dwelling size
Housing (rental)
prices
120
(000s of persons)
Figure 2.3
45
Distance from CBD (km)

Source:
Notes:
1. The Reserve Bank of Australia model is calibrated based on 2005/06 Australian census and statistical data, and assumes a yearly
household income of A$70 000, 14% of yearly expenditure devoted to housing, a city of 2 million people with 800 000 households of
2.5 people each, yearly agricultural land rent of A$45 000 a square kilometre and yearly transport costs of A$600 a kilometre.
2. The Y axes in Figure 2.3 are housing (rental) prices in $ per square metre of living space; dwelling size in square metres of living
space; building height in housing floor space for each unit of land, which corresponds roughly to storeys; density in number of
persons living in a square kilometre; (rental) price of land in thousands of $ per hectare each year; and population in thousands.
Using the Alonso-Muth-Mills model to illustrate population change

The Reserve Bank of Australias version of the model was used to consider how a city would adjust to a larger
population if land was zoned and serviced with appropriate infrastructure to support peoples locational
choices in response to population growth. The Alonso-Muth-Mills model is a static model and is not able to
capture the dynamics of urban change. However, the model can compare the structure of cities with similar
characteristics (such as incomes, preferences and transport costs) but where population size differs.
Two hypothetical cities were compared, one city with double the population of the other. A higher
population creates a greater demand for housing, and housing and land prices are higher at all distances
from the CBD. Higher land prices prompt developers to economise on the use of land by building more
multi-storey buildings and population density is higher and building height rises. Because of higher housing
prices, households demand smaller dwellings. The larger population results in a larger city, yet doubling the
population is accommodated without doubling the citys footprint. This is because building height, dwelling
size and density have adjusted to the increase in the price of land and housing prices (Figure 2.4).
33
Effects of a larger population
150
600
100
400
50
200
(~ storeys)
Building height
($000/hectare,
annually)
800
Key
Density
30
30000
20
20000
10
10000
(Rental) price of
land
450
3750
City
size
2500
1250
150
0
15
30
30
15
Population
doubled
Benchmark
Population
300
(m2)
($/m2)
Dwelling size
(persons/km2)
Housing (rental)
prices
200
(000s of persons)
Figure 2.4
45

Source:
Modelling the impact of a restriction on density

Effects of a building height restriction
Dwelling size
600
100
400
50
200
Key
Density
15
15000
10
10000
5000
Population
280
210
City
size
140
2000
1500
1000
500
15
30
Building
height
restriction
Benchmark
Price of land
70
0
(persons/km2)
($/m2)
150
Building height
(~ storeys)
800
(m2)
Housing prices
200
15
30
0
45
(000s of persons)
Figure 2.5
($000/hectare,
annually)
34

Source:
The model was also used to compare the impact of a uniform height restriction across a city (Figure 2.5).
Density captures the extent to which a city is making the fullest use of its available land. Various approaches
are used to measure urban population density (see Appendix B). Some density measures capture population
density (as in the Alonso-Muth-Mills model presented here), while others measure the density of dwellings
(eg, Figure 2.12 - Figure 2.16 in this chapter).
Although the modelled height limit is the same across the city, it is most binding close to the CBD where
building height in an unconstrained city would naturally be at its highest. Because a significant proportion of
the citys population is unable to live in higher-density housing closer to the CBD due to the height limit,
many people have to live further out, the city becomes larger, overall density is lower and the population
devotes more resources to commuting. While building height is lower in the CBD, building height in the
middle and outer suburbs is higher than it otherwise would be. Overall, the price of housing is higher and
dwelling size is lower at all distances from the CBD. The effect on land prices depends on distance from the
CBD. Land prices are lower closer in because developers cannot build as high as they would want to and
therefore the land is less valuable. As the population is forced further out, demand in the outer suburbs is
higher, developers can build up to the height restriction, and land in these areas becomes more expensive.
The impact of investment in transport infrastructure

The model was also used to contrast two otherwise identical and unconstrained cities one with significant
investment in transport infrastructure as the benchmark case, and the other with less well-developed
transport infrastructure, traffic congestion and higher commuting costs (Figure 2.6).
Effects of transport investment and commuting costs
($/m2)
150
600
100
400
50
200
Building height
(~ storeys)
40
Density
60000
30
45000
20
30000
10
15000
Price of land
($000/hectare,
annually)
800
Population
800
600
City
size
400
200
0
2000
1500
1000
500
15
30
15
30
0
45
(m2)
Dwelling size
Key
(persons/km2)
Housing prices
200
Higher
transport
costs
Benchmark
(000s of persons)
Figure 2.6

Source:
In the city where commuting costs and congestion are greater, households have a stronger incentive to live
closer to the CBD. As a result, city size is smaller, building heights are higher closer to the CBD to
accommodate the denser population, and dwelling sizes at the centre are smaller. Housing and land prices
are also higher closer to the CBD. At greater distances from the CBD several of the curves cross. With higher
commuting costs, it is more costly to live further out. This means that housing prices, land prices and density
near the city fringe are lower than at the same distance under low commuting costs.
Overall, the effect of poor transport infrastructure is that households spend more of their time commuting,
and face higher average housing and land prices. Conversely, in a city with better investment in transport
infrastructure, it is more feasible to live further from the CBD, and house prices are lower, provided the city
boundary can be extended (bottom right panel Figure 2.6).
35
36
The effect of an urban limit in combination with other polices and constraints
on a growing city
Many cities around the world have limits on their expansion. In some cases urban limits (along with policies
that limit investment in roads) were put in place to reduce carbon emissions. 6 In other cases urban limits
were put in place to prevent the encroachment of cities on agricultural and rural land. Whatever the case for
their existence, considerable evidence shows that binding urban growth boundaries have major effects on
new housing supply across cities and on housing prices (Malpezzi, 1996; Ryan, Wilson & Fulton, 2004;
Pendall, Puentes & Martin, 2006).
Some of the most compelling work on the impact of an urban limit was done by Grimes and Liang (2009)
using Auckland data over 12 years from 1992 to 2004. The authors found that land just within Aucklands
Metropolitan Urban Limit (MUL) was valued at about ten times the rate of neighbouring land just outside the
MUL. In 2012, the Productivity Commission used a similar methodology to estimate the impact of the MUL
between 1995 and 2010. The Commission found that the value of the land price differential has increased
since the late 1990s, indicating that the MUL has become increasingly binding as housing demand pressures
have intensified within Auckland city (NZPC, 2012).
The price ratio between land on each side of the MUL reflects not just the constraint of the urban boundary;
it also reflects past and present policy choices. These include zoning which determines where commercial
and industrial firms can locate, and restrictions on the density of residential areas inside the boundary.
These, along with the natural geographic characteristics and features of Auckland, serve to shape the city
and constrain development.
Local policies can be offsetting or reinforcing in their impacts

The Alonso-Muth-Mills model presented above illustrates the separate impact of better transport
infrastructure and density restrictions on city structure and on housing and land prices. In reality, cities adopt
a range of policies some reinforcing and some offsetting. For example, both density restrictions and better
transport infrastructure increase a citys footprint, yet have differing impacts on housing prices depending on
the distance from the CBD. A larger population has an impact on the price of housing and land and on the
urban footprint, depending on other policies that may be in place. When limits are placed on density, rising
land prices in response to demand will not result in more dwellings on each unit of land. This forces the city
to expand its size to accommodate the larger population. Where a city combines density controls with an
urban limit, population growth will more quickly reach the limit and the constraint can become binding. This
leads to high differentials in the price of land on either side of the urban boundary.
An assessment of Aucklands policies by NZIER using the Alonso-Muth-Mills model found that inadequate
transport infrastructure and an overly tight MUL imposed significant costs on households. The impact is
compounded in Auckland because of the citys constrained geography. The study concludes that because of
its natural geographic constraints, it is all the more important to get the policy settings around land use
regulation and transport infrastructure in Auckland right (NZIER, 2014a).
F2.2
2.4
Specific planning or infrastructure policies have differing effects on the ability of cities to
grow and use land efficiently. Some policies may counteract or offset others. Ensuring
that land use policies and transport infrastructure investments are aligned is particularly
important for cities such as Auckland, where geography adds further constraints to
growth.
The supply response to an increase in demand
The supply responsiveness of the housing market influences the extent to which an increase in housing
demand leads to more housing or to higher housing prices. If the supply of housing is constrained in some
In the absence of carbon and congestion pricing, some may consider a growth limit to be a second-best policy to deal with congestion and sprawl.
way, then increased demand will tend to feed into higher housing prices, rather than an expansion in
housing supply (Gyourko, 2009).
The extent to which new housing can be constructed in response to changes in demand is determined by a
number of factors, including:
the constraints of local geography;
land use and planning regulations which determine how much land is available for new dwellings;
the ability to service land with infrastructure to support new housing; and
the extent to which the construction sector can gear up and build the type of housing demanded.
Researchers have found that in some cases these factors act in tandem to constrain housing supply. For
example, Saiz (2010) has explored the relative role of geographical versus regulatory constraints on
development and housing prices. Saiz found that most areas in the United States that are widely regarded as
supply-inelastic are severely land constrained by their geography. Restrictive geographical features in US
cities are a strong predictor of housing price levels and growth. But he also found that US cities that were
geographically constrained also had the strictest regulatory constraints. One explanation for this is that
geographically constrained cities are likely to have higher land values and so citizens have greater incentive
to use regulation through the political process to protect those values (Saiz, 2010).
Restrictions on land supply (zoning, planning rules and other interventions) appear to be ubiquitous and
have effects on the responsiveness of housing supply to changes in housing demand in many countries. 7 A
number of comparative cross country studies also attribute the substantial variations in supply elasticities to
restrictive land use policies, often in combination with other factors. 8
Barker (2004a; 2006a; 2008) focuses attention on the planning system and on other important constraints on
the effective expansion of supply in the United Kingdom, such as the provision of infrastructure and its
financing. The ability for land to be serviced with infrastructure such as roads and water (fresh water supply,
waste water treatment and stormwater management) is an important factor in the supply response. In the
case of greenfield land, new connections to existing infrastructure are required. Use of brownfield or infill
sites can take advantage of existing capacity, but in some cases infrastructure may require upgrading.
Concern about the cost of infrastructure to support growth appears particularly important in New Zealand:
Councils are constrained in their ability to fund and deliver infrastructure by Local Government Act
requirements to raise revenue, cash fund depreciation and consider alternative infrastructure and
funding and delivery options. Additionally, councils are constrained by revenue/debt ratios and their
impact on council credit ratings. Together with political pressure to keep rates and debt levels low a
constant tension exists between providing infrastructure for the growth of our cities and communities
and meeting the expectations of current communities. (Te Tumu Landowners Group, sub. 40, p. 13.)
A survey of nine councils in New Zealand (NZIER, 2015) found that the cost of new infrastructure influenced
the rate of residential development in their jurisdiction. The answers of those surveyed showed a strong,
positive correlation between councils stringency of land use regulation and the influence of the cost of
infrastructure.
Bourassa et al. (2010) used 30 years of price data from Switzerland between 1978 and 2008 to separate out
the responsiveness of land supply and of construction in response to a demand shock. The authors found
that land supply in locations desirable for residential use is relatively inelastic. In contrast, dwelling supply in
Switzerland is more elastic, provided that construction can gear up to meet the demand. Land price changes
have largely driven house price changes in Switzerland. The authors conclude that the ratio of land to
property value is an important factor in explaining house price movements.
See, for example, Titman (1985), Mayer & Somerville (2000a), and Malpezzi & Maclennan (2001) in the United States; Bramley (1993) and Evans (1996) in the
United Kingdom; and Vermeulen & Rowendal (2007) in the Netherlands.
See, for example, Mayo & Sheppard (1996) and Malpezzi & Maclennan (2001).
37
The response to the Christchurch earthquakes has demonstrated the factors that influence the ability of the
building industry to meet the demand for new housing. Regular surveys of consultants, contractors,
developers and local government and government agencies involved in the construction and infrastructure
sectors identified a range of barriers to the rebuild. These include poor information about planning,
regulations, and delays in consenting processes, but also resource and capacity limitations in the building
industry (AECOM, 2015).
The responsiveness of housing supply to changes in demand (also known as elasticities) varies across the
countries for which data is available (Figure 2.7). Where a supply elasticity is equal to one, a one percent
increase in the price of housing will result in a one percent increase in supply. Where the supply elasticity is
greater than one (as is the case in Canada, Denmark, Sweden and the US), a one percent increase in price
will see the housing supply increase by more than one percent.
With a long-run supply elasticity of less than one, an increase in the demand for houses in New Zealand is
estimated to lead to a proportionately larger increase in house prices than in new house construction. New
Zealand performs rather better, however, than many European countries and the UK.
Results suggest that housing responsiveness to price changes varies substantially across countries, with
potential consequences for the speed of adjustment of housing markets. New housing supply tends to
be relatively flexible in North America and some Nordic countries, while it is more rigid in continental
European countries and in the United Kingdom. (Snchez & Johansson, 2011, p. 6)
Figure 2.7
Supply responsiveness of housing to price changes, selected countries

2.5
2.0
Index of supply responsiveness
38
1.5
1.0
0.5
0.0
Source:
Snchez & Johansson, 2011.
Note:
1. Estimates of the long-run price-elasticity of new housing supply are derived from a stock-flow model of the housing market that is
estimated with an error correction framework. The estimation period is from the early 1980s to the mid-2000s.
F2.3
New Zealands housing market is only moderately responsive to changes in prices,

meaning that an increase in demand for housing will lead to a proportionately larger
increase in house prices than in new house construction.
Local differences
National figures can belie local differences. In many countries the regulations and infrastructure decisions
that influence the land available for housing are set and/or administered by local councils. As such, the
extent to which housing supply responds to changes in demand, and the associated price dynamics, will vary
within countries. In areas where council policies and practices allow for rapid expansions in new house
construction, house prices will be less volatile than in areas where new supply is more constrained.
Grimes and Aitken (2010) found that housing supply is more responsive, and house prices less responsive, to
a demand shock where land is supplied relatively easily. Importantly, supply elasticities varied across
territorial authorities, potentially reflecting regulatory and/or geographical constraints. The authors observe
that several considerations will impact on the availability of new residential lots:
These considerations include geographical and regulatory constraints, market structure (e.g.,
concentration of ownership of land suitable for residential development), availability of infrastructure
and time taken to lay on new services for residential developments. (Grimes & Aitken, 2010, p. 350)
Yet measuring the strength of local regulatory constraints can be problematic, as regulation can take many
forms. Gyourko and Molloy (2014) characterise measurement efforts to date as either deep and narrow with
extremely detailed information about regulation on a single location or shallow and wide where general
regulatory characteristics are captured across a wide range of locations.
One example of a deep but narrow approach is the study by Glaeser and Ward (2009). The researchers
investigated the causes and consequences of land use regulation in the Greater Boston area. An example of
a shallow but wide approach is the Green, Malpezzi and Mayo (2005) study of 45 metropolitan areas in the
United States. The researchers found that housing supply is highly responsive to demand pressures in cities
with pro-development regulatory environments and readily available land. In contrast, supply
responsiveness is low in cities with high regulatory barriers to expansion. Importantly, they also found that
urban density is an important predictor of supply elasticity. Regardless of how density is specified as the
number of dwellings or as a measure of the population per unit of land higher densities produce lower
elasticities. This suggests that the denser a city already is, the harder it is for supply to respond to an
increase in demand.
Another example of the shallow but wide approach is the survey of over 2 000 communities in the United
States undertaken by Gyourko, Saiz and Summers (2008). The researchers used the responses to the survey
to construct an index of the stringency of land use regulation called the Wharton Residential Land Use
Regulatory Index (WRLURI). Gyourko, Saiz & Summers (2008) found that Boston and parts of New England in
the United States were the most heavily regulated, while the Mid-West and the South were relatively less
heavily regulated. Stringency of land use regulation, as measured by their index, was strongly correlated with
wealth in local communities. They found that median house prices in the most highly regulated places in the
United States were nearly twice the median price in lightly regulated locations, although the correlation
between house prices and the index was relatively weak. A small study of the regulatory stringency of nine
New Zealand councils using the WRLURI also found a weak positive correlation between house prices and
the stringency of regulation as measured by the index (NZIER, 2015).
2.5
Responsibility for planning: councils, planners and community
The role of central government and local government

The submission from Waikato District Council sums up the role of local councils with respect to land use
planning and the provision of infrastructure:
Local government is the main regulator of land use and provides the zoning and rules governing land
development for housing and development in general. It is important for any local authority to use these
powers to ensure both an adequate supply of land and space for development. Good planning
therefore is not just about providing housing but also all the associated infrastructure and services that
goes into creating liveable communities. (sub. 12, p. 9)
As outlined earlier, in many countries the regulations and infrastructure decisions that influence the land
available for housing are set and/or administered by local governments. However, the extent of national or
state government involvement (in urban policy, land use regulation and the provision of infrastructure) varies
considerably from country to country (Hartwich, 2014). In New Zealand, councils have considerable autonomy
in determining land use policy and regulation under the Resource Management Act 1991 (RMA) (although
local authorities must give effect to National Environmental Standards (NES) and National Policy Statements
39
40
(NPS) and central government can influence urban planning through guidelines and protocols). Local
authorities are responsible for providing local infrastructure to meet the needs of communities under the
Local Government Act 2002 and have flexible powers to determine rates under the Local Government Rating
Act 2002. With the exception of funding for roads, transfers of funds from central to local government in
New Zealand are insignificant. 9 Accordingly, the primary accountability of councils is to their local residents:
While local government is a creature of statute, it operates as a largely autonomous provider of services,
funded separately by property taxation and held accountable by voters. In the absence of well-defined
constitutional or fiscal relationships, local and central government are most accurately regarded as two
spheres of a system of collective decision-making, each with revenue-collection powers to fund the
implementation of its particular policies and programmes. (Local Futures Research Project, 2006, pp. 13
14)
The role played by central government in urban policy, regulation and the provision of infrastructure in
New Zealand today contrasts with that of other jurisdictions. For example, the role of Australian state
governments in urban affairs has been increasing since the early 2000s. From 2000 to 2005, planning under
state governments was progressively recentralised, with the establishment of metropolitan plans and special
treatment of major infrastructure projects (in New South Wales). The period 2006 to 2010 saw increased
codification and standardisation of local planning (in NSW, South Australia, Queensland and Victoria),
increased emphasis on infrastructure funding, and increased state powers to intervene in local planning
(Gurran, Austin & Whitehead, 2014). Gurran, Austin and Whitehead (2014) characterise the Housing Accords
and Special Housing Areas Act, 2013, and the apparent willingness to take over planning powers in
Christchurch, however, as efforts at greater centralised control:
The act introduced greater centralised control: while local councils were given an opt out clause, the
government could introduce the more permissive planning regime regardless. In addition the
government (through the Earthquake recovery Minister) has stated that it will take over planning powers
in Christchurch . if needed to ensure residential development goes ahead as it deems appropriate.
(p. 193)
Central government has tended to devolve to local government or centralise control to suit its purposes
(NZPC, 2013). Kenneth Palmer observes: The history of local government depends primarily on the policies
and mandates of central government, and the practical advantages in conferring local powers to provide
and regulate functions and services (2012, p. 1075). Changes in urban planning legislation and the
responsibilities of central government and local government in New Zealand are outlined in Box 2.2. A more
detailed research note on the history of New Zealand planning can be found on the Commissions website.
Box 2.2
Responsibility for land use regulation, infrastructure and urban planning
Early legislation
The Municipal Corporations Ordinance of 1842 gave local authorities power to make and repair roads,
water works, and sewers. Over time, the provincial regulations controlling the sale and disposal of land
reflected a growing awareness that the essential needs of urban settlements had to be deliberately
provided for. The Waste Land Regulations adopted by different provinces during 18551857 contained
measures for the provision of reserves, control of subdivision and obnoxious industry, and reservation
of land for public purposes. In 1867 central government passed the Municipal Corporations Act which
covered matters such as the width and protection of streets, sewerage, lighting, water supply, markets,
community buildings, and reserves.
The first town planning legislation was the Plans for Towns Regulation Act 1875. It was limited and
restricted in its application. It was concerned with the laying out of towns, controlling the width and
layout of streets and providing for reserves, rubbish disposal areas, and gravel pits. Councils were
empowered to make bylaws to regulate building and to promote public health and safety for
example powers to impose minimum yard spaces to ensure light and ventilation.
An example of a small transfer of funding to local authorities from central government is the Drinking-Water Assistance Programme. The programme
includes subsidies to help small rural communities establish or improve their drinking water supplies.
The beginning of town planning

The first Town Planning Act was passed in 1926, when the rate of urban growth prompted sufficient
political momentum to pass planning legislation. A feature of the Act was centralised control over
planning. Local authorities were accorded power to prepare planning schemes, but central government
retained ultimate authority to approve the schemes and consider requests for subsequent changes.
The Act established a Town Planning Board headed by the Minister of Works.
Rapid suburban growth in the post-war period occurred in a largely incremental manner, without either
serious consideration to the functional layout of cities or the provision of services and amenities. The
system of local government at the time exacerbated these issues. While territorial local authorities were
responsible for land-use planning, in many instances the provision of water, drainage, electricity, and
other infrastructure services was undertaken by separately funded, special purpose local and regional
agencies. Central government also lacked a cohesive urban policy.
A greater role for local authorities
The Town and Country Planning Act 1953 transferred the powers previously vested in the TownPlanning Board to local authorities. A new authority called the Town and Country Planning Appeal
Board was empowered to deal with appeals from council decisions. The Board came to exert wideranging influence on planning practice in New Zealand. Each planning authority was responsible for
preparing and approving a district planning scheme, but each council had to submit its scheme to the
Minister of Works who checked that it made sufficient provision for public works and that it complied
with relevant regulations.
The purposes of district and regional schemes under the 1953 Act were potentially far-reaching,
concerning not just the essential amenities and services and physical environment of urban areas, but
also the welfare of their inhabitants. The late 1960s and early 1970s saw a further shift in planning
practice. Councils moved away from administering zoning that controlled the built environment toward
a broader strategic and policy-focused function. A new Town and Country Planning Act in 1977
included two important directives to local government. The first directive was to use and manage
New Zealands resources wisely. The second directive was to recognise the relationship of Mori,
through their culture and traditions, with their ancestral land.
The Resource Management Act 1991
In 1987 the Government initiated a review of New Zealands town and country planning legislation that
ultimately resulted in the passing of the RMA. The RMA was an attempt to do away with zoning,
establishing in its place an effects-based system, elaborated locally in a District Plan. Any land use or
activity could be permitted so long as it did not undermine the sustainable management of natural and
physical resources. The RMA has been successively amended since its inception.
Source: Barry-Martin, 1956; Perkins et al., 1993; Hearn, 1987.
While urban policy and planning has largely been the responsibility of local government, central government
has not been unconcerned. The review of New Zealands town and country planning legislation in 1987, for
example, was initiated for a number of reasons, some of which appear to have been longstanding issues of
concern to central government:
Other criticisms of the current planning process are the subject of specific items in my terms of
reference; that is to say the desirability of greater flexibility and speed of decision making, the
widespread perception that the Act acts a restraint on much worthwhile development, the problem of
multiple consents and the lack of integration in resource management statutes.
Further relevant matters in submissions made to me cover a wide variety of topics such as the role of the
Crown; the role of the Planning Tribunal; the process being too legalistic; rights of public participation
being too narrow or too wide; the need for environmental protection; the failure to adequately
recognise the significance of trees, historic buildings and such matters.
41
42
In reviewing the circumstances which gave rise to the reforms of the 1953 Town and Country Planning
Act, said to be contained in the 1977 Act I am struck by the number of criticisms of the 1953 Act which
are now being repeated in respect of the 1977 Act. (Hearn, 1987, p. 22)
Hearns comment in 1987 that he was struck by the number of criticisms of the 1953 Act which are now
being repeated in respect of the 1977 Act are also being revisited in reviews of the RMA. And, of particular
relevance to this inquiry is the speed and flexibility with which the planning system can respond to the
demand for new housing and whether undue constraints are placed on housing development. Further,
matters raised in submissions to the review of the 1977 Town and Country Planning Act, such as the role of
the Crown; rights of public participation being too narrow or too wide; the need for environmental
protection; the failure to adequately recognise the significance of trees, historic buildings and such matters,
have also found been found in submissions to this inquiry.
F2.4
There are longstanding concerns about the ability of New Zealands planning systems
to respond to the need for new housing, and about the extent of constraints placed on
development.
The legislative changes outlined in Box 2.2 also reflect changing beliefs about the role and scope of urban
planning and increased community involvement in planning.
The role and scope of planning: improving social outcomes

The scope of urban planning has been influenced by beliefs about the perceived benefits of planning by an
emergent planning profession in the twentieth century. These views are still reflected in planning philosophy
and practice today.
Urban planning and public health

The proposition that urban planning could improve the lives of urban dwellers began with the public health
movement in the late nineteenth century. Urban planners and public health professionals began to address
high rates of disease caused by household waste that polluted streams and drinking water and encouraged
vermin. Improved public health as a result of such efforts highlighted how planning and intervention could
positively impact on the quality of city life (Schrader, 2012a). The voice of public health professionals has
remained influential in urban planning and infrastructure provision in New Zealand, resulting in increased
standards for infrastructure. For example, earlier standards for drinking water set in 2005 by the Ministry of
Health were superseded by new standards in 2008.
Urban design to deter crime

The belief that managing the built environment could reduce serious social problems such as larrikinism in
New Zealand dates from the 1920s (Perkins et al., 1993). But the notion that urban design could reduce crime
achieved prominence with the publication of Jane Jacobs book The Death and Life of Great American Cities
in 1961. Jacobs advocated the use of high-density, mixed-use communities to stimulate increased street
traffic day and night to deter criminal and anti-social behaviour. Criminal activity, she argued, is attracted to
secluded spaces and crime is more likely to occur when criminals believe they will not be caught. Jacobs
eyes on the street concept, asserting that a place can be made more secure by populating it, is referred to
in the Ministry of Justice publication National Guidelines for Crime Prevention through Environmental
Design in New Zealand (2005). The Guidelines recognise that crime occurs for many reasons and cannot be
prevented by well-designed places alone, but argues that proper design and effective use of the built
environment can help to reduce criminal opportunity and foster positive social interaction among
legitimate users of space.
Broader benefits for quality of life

The belief that well-designed surroundings would materially improve quality of life more broadly originated
with the environmentalism of the garden city movement in the early twentieth century. The movement
started in Britain in response to concerns about the deleterious effects of inner-city slums on children. The
state of inner city residential areas in New Zealand was a particular concern in the post war period when
right or wrongly many believed that New Zealand towns and cities had fallen into a state of chaos
(Gatley & Walker, 2014, p. 19). Garden city planning offered low-density housing, different road widths to
accommodate different traffic densities and cul-de-sacs to encourage social interaction. New state housing
suburbs after the Second World War were constructed with these ideals in mind (Schrader, 2012b). The state
housing programme in the Hutt Valley was the most ambitious, with three suburbs (Epuni, Naenae, and
Taita) constructed along garden-city principles. Those principles included curved streets to follow the
topography and counter monotony, reserves, community centres, and single-dwelling sites.
A new Local Government Act in 2002 required local authorities to play a broad role in promoting the social,
economic and environmental and cultural well-being of their communities, taking a sustainable development
approach (Part 1 3(d) now repealed). Prevalent beliefs about the role, scope and impact of urban planning
fitted well with the ideals of the new Act. In the 2000s, central government also appears to have directly
promoted urban design as a means to achieve social and cultural goals. The Ministry for the Environments
New Zealand Urban Design Protocol (2005) states:
Quality urban design can help us avoid some of the problems of poorly designed low-density
developments that we have experienced in the past. These problems have included: traffic congestion,
unsustainable energy use, overloaded urban infrastructure, a lack of distinctive identity, social isolation,
and reduced physical activity with its associated problems such as obesity, diabetes and heart disease. In
many of our cities we have seen a trend towards multi-unit developments (these accounted for 20-30
percent of all building permits approved in Auckland over the past five years). Quality urban design can
help ensure multi-unit developments provide attractive, liveable and affordable options, without impacting
on our heritage and distinctive identity, our privacy, or overloading our urban infrastructure. (MfE, 2005,
p. 9)
Adherence to this protocol is one of a number of criteria to be considered in deciding whether to approve
resource consent applications under the Housing Accords and the Special Housing Areas Act 2013
(s. 34 (1)(e)).
F2.5
The idea that urban design can ameliorate social problems is longstanding, and
continues to be promoted through initiatives such as Special Housing Areas.
The costs of urban planning

While there are benefits associated with good urban design, the costs may outweigh the benefits. The
Commission questions whether adequate consideration has been given to the costs as well as the perceived
benefits of planning.
The New Zealand Urban Design Protocol (2005), for example, claims that good design is value for money
because it creates productive, robust and attractive environments and that research has found no
evidence that quality urban design necessarily increases development costs (p. 8). But planning based on
urban design principles is not without cost. This chapter establishes significant aggregate costs of current
planning approaches for society, and Chapter 5 points to some unjustified costs from specific urban design
requirements. Urban planning decisions, such as maintaining our heritage and distinctive identity (p. 9 of
the protocol as above) is not without a significant opportunity cost. Like height or other density restrictions,
maintaining the heritage character of large parts of residential suburbs close to city centres has a cost in
terms of the ability to economise on the use of land, with consequent costs for individuals and the
community. These costs should be recognised. The Commission also questions, as it did in its 2012 Housing
affordability inquiry, whether the discipline of planning has the tools and processes to evaluate and reconcile
the multiple objectives it seeks to influence through urban design.
F2.6
Proponents of good urban design articulate the consequent benefits well, but appear to
take much less account of the costs of individual design requirements or their
aggregate effects.
43
44
Community participation and the politicisation of planning

From the early days of settlement in New Zealand, planning has been the subject of public interest and
debate. Early planning legislation made no formal provision for community consultation or participation in
decision making about planning, but that did not mean the public were disinterested or not involved.
The early 1900s saw widespread public debate about and engagement with town planning. Various planning
schemes were mooted and proposed (Perkins et al., 1993, p. 18). Large numbers of people attended public
lectures and conferences to discuss planning issues. The anxiety that the urban problems of Britain might
become entrenched in New Zealands cities led to widespread middle-class support for the ideas of the
garden city movement in New Zealand. In response, a number of active clubs and societies became involved
with planning and planting projects. In the post-war period, fear of slums developing in the cities was a
significant public concern. Yet, at the same time, urban expansion outside municipal boundaries also led to
concerns about sprawl and the loss of productive agricultural land from low-density suburbanisation
(Perkins et al., 1993; Gatley & Walker, 2014).
The 1970s saw a trend towards increased formal provision for community participation. The Local
Government Act 1974 introduced community councils, which could represent local opinion and encourage
and coordinate activities for the general wellbeing of the residents in the community. This increased
emphasis on community participation was also evident in the Town and Country Planning Act 1977. That Act
expanded objection rights, so that a person or body affected, or any body or person representing some
relevant aspect of the public interest, could object to a scheme or planning application. 10 The 1977 Act also
introduced public consultation, by enabling submitters to make submissions about draft schemes.
The focus and style of planning changed during this time. Planning became more politically orientated and
based upon bargaining, and conflicts were brought into the open forum of local government politics
(Perkinset al., 1993). The RMA introduced extensive public consultation and participation requirements.
Interested people could make submissions on proposed Plans or Plan changes and on resource consent
applications, be heard at council hearings concerning plans and consents, and could appeal certain matters
to the Environment Court. Councils had to consult with specified people and groups when making plans and
policy statements.
F2.7
The public have always shown a strong interest in planning matters. Over time,
successive planning frameworks have included more formal rights for the public to be
consulted and/or object to land use rules and proposals.
Urban planning is a form of regulation and, like all forms of regulation, is subject to capture by groups who
stand to benefit from its application. For example, urban planning can limit the form, scale and pace of
change in communities, thereby protecting the amenity of existing residents. Critics of urban planning such
as Adams (n.d.) argue that planning is always open to capture by wealthy or influential residents to promote
property values and special interests. For example, zoning of land use appeared in the United States in the
1880s, ostensibly to separate incompatible land uses such as industry and residential areas. Yet the first
zoning ordinance in the United States in Modesto, California in 1885 was used to restrict laundries and
wash houses (all operated by Chinese) to a section situated on the west or wrong side of the tracks. Adams
argues that the planning practice of today is even more focused on protecting property values.
The impact of public participation and opinion in planning was demonstrated during the Auckland
amalgamation process. A number of proposed policies and plans were changed in response to public
opinion. For example, the Proposed Auckland Unitary Plan (PAUP) proposed rules that would allow higherdensity housing in suburbs. The proposal faced significant community resistance. The Auckland Council
eventually scaled back intensification plans that would have rezoned some suburbs to allow terraced housing
and apartments (Box 2.3).
10
Under the 1953 Act only individual landowners directly affected had the right to object.
Box 2.3
Community consultation on the Proposed Auckland Unitary Plan
An Auckland Council report detailed the extensive consultation and engagement undertaken in
preparing the PAUP and after its release. The report noted that public opinion was generally opposed
to building heights in the PAUP, with 86% of people against the provisions and 14% in favour (Auckland
Council, 2013a, pp. 45).
Public consultation and feedback also contributed to changes being made to proposed rules on
residential zoning in the PAUP. Feedback from the general public, architects and urban designers
indicated that the mixed housing zone of the PAUP was too broad in its spatial application and a
greater range of heights and densities should be established. As a result of feedback, the Auckland
Plan Committee determined to split the residential zone into two zones based on criteria related to
proximity to centres and public transport, height and density (Auckland Council, 2013b, pp. 89).
The Council, in its Section 32 report, described the changes as an improvement on the original
proposals. It said that the change in policy would likely result in
relatively minor overall variation in terms of dwelling yields across the two split zones, but that the
distribution of those dwellings is potentially more acceptable to the public, and a better alignment
with wider goals around location of growth into locations that can best support it sustainably.
(Auckland Council, 2013b, pp. 89)
However, the Ministry of Business, Innovation and Employment (MBIE) submitted that a deliberate
down-zoning had occurred between the draft Unitary Plan released in March 2013, and the proposed
version, creating a misalignment between areas of high demand and the areas where growth is
provided for (MBIE, 2014b, p. 7). MBIE said this was an example of the misalignment between the
regional-level policy objectives and the district-level provisions aimed at implementing those
objectives.
MBIE criticised what it argued was the privileging of short-term interests at the expense of longer-term
utility. It said there was little justification for why ostensibly market-attractive areas, such as those near
transport and employment, have been zoned at low densities (or lower densities than indicated in the
PAUP in March 2013): inefficient use of market attractive land while protecting the micro-amenity of
neighbourhoods in the short-term will seriously compromise the macro-utility of the city as a whole
(MBIE, 2014b, p. 9).
Source:
Auckland Council, 2013a, pp. 45; Auckland Council, 2013b, pp. 89; MBIE, 2014b.
Rezoning to promote development can also be captured by landowners seeking to make gains from the
uplift in land values. A recent study by two researchers at the University of Queensland investigated
landowner relationship networks and political lobbying behaviour between 2007 and 2012. In Queensland,
the Urban Land Development Authority took planning control away from local councils in selected areas in
order to increase the speed and scale of development. The process increased land values in the selected
areas. The research found that connected landowners owned 75% of land inside the rezoned areas, and
only 12% outside, capturing A$410 million in land value gains out of the total A$710 million from rezoning. 11
The authors conclude that if their study is representative, then over the last few decades billions of dollars of
economic rent have been transferred from the general population to connected land owners through
rezoning in Australia (Murray & Frijters, 2015).
The next section presents data on land and property values in New Zealand and looks at the impact of land
values on the size and price of new dwellings. Section 2.6 also provides data on the growth in density of
Relationship networks comprise corporate ownership and directorship connections of land owners and their companies, connections from employing
professional lobbyists, and property industry group membership. There were marked differences in the networks of the successful property developers and
the unsuccessful ones.
11
45
46
some New Zealand cities and reports on an attempt to measure the regulatory stringency of land use
regulation in nine of New Zealands fastest growing councils.
2.6
What do we find in New Zealands fastest growing areas?
New Zealand has experienced relatively high population growth over the past decade compared to the
OECD average. Much of this growth has been concentrated in urban areas (Figure 1.4).
The price of land in urban areas

Section 2.3 sets out the impact the competing dynamics of population growth and local council polices on
the price of land:
residential land prices in unconstrained cities will rise as the population increases (Figure 2.4);
density controls, such as a height restriction, would see the price of land decline where the controls
bite in areas closer to the centre of a city, and rise further out (Figure 2.5);
poorer transport investment and higher commuting costs increase the price of land closer to a citys
centre (Figure 2.6); and
an urban limit increases the price of land just inside the limit.
Regulations that restrict the number of dwellings that can be built on each unit of land reduce the value of
that land to a developer, because such restrictions limit its use. 12 Yet when the population is growing, the
overall price of land will still be more expensive than in the absence of restrictions due to constrained supply.
Figure 2.8 shows the growth in land values in the 10 high-growth councils that are the focus of this inquiry.
Prices in all areas increased, but Auckland and Queenstown nominal land prices rose dramatically after 2004
2005. In Aucklands case, the price growth might reflect the introduction of the Local Government (Auckland)
Amendment Act 2004. This Act:
required all Auckland territorial authorities to give effect to the Auckland Regional Growth Strategy,
which strongly promoted meeting population growth through intensification; and, at the same time,
prohibited territorial authorities or the Environment Court from extending the Auckland MUL without the
agreement of the Auckland Regional Council.
However, this assumes that by 2004 the available residential land in Auckland was already becoming scarce.
Restrictions can include height restrictions, but also ceiling heights, minimum floor-space requirements, maximum site coverage, and rules about the
required setback from the street.
12
Figure 2.8
450 000
400 000
350 000
300 000
250 000
200 000
150 000
100 000
50 000
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Year
Source:
Auckland
Christchurch City
Hamilton City
Selwyn District
Tauranga City
Waikato District
Wellington City
Whangarei District
rest of NZ
Land value comprises between 40% and 60% of total property value in the 10 high-growth councils that are
the focus of this inquiry (Figure 2.9). The land value share of total property value is now significantly higher in
Auckland than in other cities.
Figure 2.9
Land value as a share of total property value
0.7
Land share of capital value
0.6
0.5
0.4
0.3
0.2
0.1
0.0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Year
Source:
Auckland
Christchurch City
Hamilton City
Selwyn District
Tauranga City
Waikato District
Wellington City
Whangarei District
rest of NZ
47
F2.8
Land values in major New Zealand cities and high-growth areas increased significantly in
the middle of the last decade, both in nominal terms and as a share of total property
values.
Skewed dwelling production

The Commission noted in its Housing affordability (2012) report that rising land costs contributed to the
decline in the production of lower-cost new dwellings (p. 43). The effect can be seen in the production of
more expensive dwellings (Figure 2.10).
Figure 2.10
The value of new housing relative to existing housing stock (5-year averages)
0.7
0.6
0.5
Proportions
48
0.4
0.3
0.2
0.1
0.0
Source:
Minimum - Lower Quartile
Lower Quartile - Median
Median - Upper Quartile
Upper Quartile - Maximum
Productivity Commission calculations using Quotable Value data.
Note:
1. In the early 1960s the value of most new housing was lower than the average value of existing housing. In comparison, more than
half of new builds in 2014 were valued in the upper quartile of all housing stock.
Professor Laurence Murphy, of the University of Aucklands Business School, offers an explanation for why
only top-of-the-market dwellings are constructed, and how they inflate housing prices. Murphy argues that it
requires an understanding of the factors that underpin the decision making processes of developers. He
explains the residual value model:
Residual value is a central concept affecting all development feasibility studies and refers to the
maximum bid that a developer will make for a site in order to undertake a particular development
(Jowsey, 2011; Whipple, 2006). The residual value is simply the difference between the total value of the
proposed development and the total costs of construction (including profit). (Murphy, 2013, p. 4)
Typically, banks want to see where the developers return is coming from and a developer needs to
construct dwellings that sell at the top of the market if the developer is to be a successful land purchaser.
Murphy argues that a developer cannot build a modest house with the expectation of selling the total
property for say $500 000 because they will be outbid for the land by the developer who believes that by
building a more expensive house, they can sell the total property for $700 000 (see Table 2.1 for an example).
This is what drives the race to the top for both new house prices and land prices.
Table 2.1
Scenarios demonstrating the effect of the residual value model on land price
Unit price
Number of
units
Gross
development
value
15% profit
required
Costs of
construction
Willing to
pay for land
$500k
10
$5m
$750k
$3m
$1.25m
$600k
10
$6m
$900k
$3.3m
$1.80m
$700k
10
$7m
$1050k
$3.6m
$2.35m
Source:
Productivity Commission, based on panel discussion at the Urban Health and Sustainability Affordable Housing Summer
School, Otago University, Wellington, 11 February 2015.
The average size of new dwellings grew by more than 50% between 1989 and 2014 (Figure 2.11). This growth
was driven mainly by larger houses. In contrast, apartments have increased only slightly in average size over
the past quarter-century, pointing to their importance as a way of getting more efficient use of land.
Figure 2.11
Average floor size of new dwellings
250
Square metres
200
150
100
50
0
1989
1991
1993
1995
Apartments
Source:
1997
1999
2001
2003
2005
Total residential buildings
2007
2009
2011
2013
Houses
F2.9
High land prices encourage the production of larger and more expensive housing. In
New Zealand, the average size of new dwellings has increased by more than 50% since
1989.
Differing intensification patterns in New Zealand cities

In an unconstrained market, cities facing population growth would expect to see rising land prices at the
urban centre and greater intensification of dwellings as developers and purchasers try to make more
49
50
economical use of land. While few, if any, land markets fit the description of an unconstrained market, the
Alonso-Muth-Mills model provides a useful baseline against which to compare the actual performance of
cities. The Commission analysed changes in the density of selected New Zealand cities over three census
periods (2001, 2006 and 2013). 13 The results of the Commissions analysis are outlined below, in Figure 2.12
to Figure 2.16. The figures describe the relative contribution to intensification of different segments of the
city (defined in terms of their distance from the city centre) and the overall change in the citys density. The
overall figure is the sum of the contributions made by the different parts of the city to density.
Some New Zealand cities (eg, Wellington and greater Hamilton) behave largely as the Alonso-Muth-Mills
model would predict, with intensification concentrated towards the urban centre, especially between 2001
and 2006 (Figure 2.12 & Figure 2.13).
Figure 2.12
The contribution to intensification by distance from the centre of Wellington

8%
7%
6%
5%
4%
3%
2%
1%
0%
0-4.9km
5-9.9km
10-19.9km
2001-2006
Figure 2.13
20-29.9km
30-39.9km
40-49.9km
Overall
2006-2013
The contribution to intensification in the Waikato by distance from the centre of

Hamilton
12%
10%
8%
6%
4%
2%
0%
0-4.9km
5-9.9km 10-19.9km 20-29.9km 30-39.9km 40-49.9km

2001-2006
50+km
Overall
2006-2013
Other cities have behaved differently. In Auckland, the centre has made a relatively subdued contribution
towards intensification. Between a third and half of the citys intensification between 2001 and 2006 occurred
between 10 km and 20 km from the centre (Figure 2.14).
The Commissions analysis produces results that can be compared to that predicted by the Reserve Bank of Australia as the Kulish, Richards & Gillitzer
(2012) model although these results are for dwelling density rather than population density. The Commission has focused on dwelling density because
population intensification may simply reflect overcrowding rather than a housing supply response. However, the results of the dwelling density-based
analysis should not materially differ from the outcomes predicted by Kulish, Richards & Gillitzer (2012), as their modelling assumes constant household
sizes. As a result, increases in population density in the Kulish, Richards & Gillitzer (2012) model equate to increases in dwelling densities.
13
Figure 2.14
The contribution to intensification by distance from the centre of Auckland

12%
10%
8%
6%
4%
2%
0%
0-4.9km
5-9.9km 10-19.9km 20-29.9km 30-39.9km 40-49.9km 50+ km

2001-2006
Overall
2006-2013
A number of commentators have noted Aucklands unusual density profile. Hill Young Cooper concludes
that when Aucklands
actual urban density (dwellings per ha) is compared to land values, then it is apparent that there is a
significant deviation occurring close to the CBD. The densities in this area have not adjusted to the
higher land prices. This is likely to be the result of the heritage zoning in this area. This suggests a
significant imbalance between supply and demand, one that is likely to drag up the median house price.
(sub. 65, p. 16)
In greater Christchurch, the centre of the city (ie, up to 10 km from Cathedral Square) detracted from overall
intensification after 2006 (Figure 2.15). This most likely reflects the 2010 and 2011 earthquakes, which
destroyed a large share of the housing stock in the city. The largest contribution to intensification after 2006
occurred 2030 km from the centre, in the Selwyn and Waimakariri districts. Between 2001 and 2006, greater
Christchurch had an intensification profile similar to Auckland, with the heart of the city (<5 km from
Cathedral Square) making a relatively weak contribution, even before the Canterbury earthquakes.
Figure 2.15
The contribution to intensification by distance from the centre of Christchurch

10%
8%
6%
4%
2%
0%
-2%
-4%
0-4.9km
5-9.9km 10-19.9km 20-29.9km 30-39.9km 40-49.9km 50+ km

2001-2006
Overall
2006-2013
Tauranga experienced relatively high overall intensification rates (an increase of more than 14% between
2001 and 2006, and more than 11% between 2006 and 2013) in a comparatively small area of land (Figure
2.16). The lions share of the intensification effort (ie, more than half) was made by suburbs 510 km from the
centre.
51
52
Figure 2.16
The contribution to intensification by distance from the centre of Tauranga

16%
14%
12%
10%
8%
6%
4%
2%
0%
0-4.9km
5-9.9km
2001-2006
Source for Figure 2.12 to Figure 2.16:

Notes to Figure 2.12 to Figure 2.16:
10-19.9km
Overall
2006-2013
1. Distance to centre of each city studied is measured as a linear distance between centres and each area unit, and is categorised into
seven categories: <5km, 5<10 km, 10<20 km, 20<30 km, 30<40 km, 40<50 km and 50 and more km.

2. Dwelling density is the number of occupied private dwelling for each square kilometre, =
, where i and
t indicate distance category and time. Area has held constant over the last three Census.
3. Bars in the overall category in each chart provide density changes in percent between two Census,
( 1 )
( 1 )
1
1 =
, is the sum of changes in dwelling counts in individual distance categories over
total dwelling counts in previous Census. Other bars present contributions to overall growth from individual distance category,
1
.
expressed as
F2.10
New Zealand cities have differing intensification profiles. Wellington and Hamilton have
seen significant intensification close to the city centre. In other cities, the biggest
contribution to intensification has occurred in outlying suburbs.
What is known about the comparative regulatory stringency of councils?

No consistently collected or comparable data is available on the stringency of land use regulation in
New Zealand. The Ministry for the Environment collects information from local authorities on process aspects
in the implementation of the RMA, such as the time taken to approve plan changes and obtain resource
consents (MfE, 2014). The two-yearly Ministry for the Environment RMA survey of local authorities is being
replaced by an RMA national monitoring system. Even so, the system will not capture the stringency of land
use regulation across local authorities.
Some detailed local information is available in council District Plans about council rules and regulations and
where they apply. But a comparison of specific rules such as height restrictions or minimum lot sizes across
councils is problematic, as different councils have different zoning categories and may use different types of
rules to achieve the same objectives. Plans tend to contain only limited information on the stringency with
which different rules are applied in practice (eg, the proportion of developments that council allows to vary
from District Plan requirements).
F2.11
No consistently collected or comparable data is available on the stringency of land use

regulation in New Zealand.
The Commission contracted NZIER to survey New Zealands fastest-growing councils about aspects of land
use regulation within their jurisdictions. The survey methodology follows that used by Gyourko, Saiz and
Summers (2008) to create the WRLURI.
Ten councils were invited to participate in the survey. 14 The responses of the nine councils that responded
were used to construct an index of the stringency of land use regulation using the weights used in the
WRLURI. 15 An important caveat is that the WRLURI methodology relies on councils self-reporting their
responses to the questions. Responses are therefore subjective and may be subject to inconsistencies, bias
or strategic responses. 16
The WRLURI captures three components of regulation:
the rules such as minimum lot size requirements or requirements on developers to provide dedicated
open spaces;
the characteristics of the jurisdiction that can influence development such as the influence of local
community groups, local opposition to growth and the councils budget constraints; and
process considerations such as delays in getting development approved.
While Gyourko, Saiz and Summers (2008) combine all three components into a single index, the NZIER study
treated the responses relating to delays in getting consents and approvals for development separately.
Gyourko, Saiz and Summers rely heavily on the argument that delays are the result of complex and wideranging rules and therefore are a good indicator of regulatory stringency. This factor may not be valid in the
New Zealand context where there is a statutory requirement to process resource consents within 20 working
days.
Rules and characteristics that influence land use regulation

Figure 2.17 presents an index of the components relating to local rules and regulations and the
characteristics that can influence development for the nine New Zealand councils.
Rules summarises the responses to questions about specific land use regulations, such as minimum lot
sizes, requirements to provide affordable housing, charges that developers may incur for infrastructure
development and charges instead of providing open spaces. While similarities exist across most councils,
Waikato District Council, Whangarei District Council and Wellington City Council have less stringent rules.
Characteristics summarises survey responses about the influence of different groups in the planning,
zoning and approval of housing developments. Wellington and Tauranga City Councils, and Waikato and
Selwyn District Councils report characteristics in this sub-index that are likely to lead to them being more
stringent in their application of land use regulation. NZIER (2015) provides more detail on the survey
responses relating to council characteristics. Community pressure is reported to be highest in Wellington
City and the Selwyn District. The Selwyn District Council and Tauranga and Wellington City Councils report
strong regional council involvement in planning. Courts are reported to be relatively more involved with
planning by the Queenstown Lakes District Council (QLDC). Tauranga City Council reports relatively high
values for the influence of the city budget on residential development. Tauranga City Council and QLDC
note particularly strong citizen opposition to developing apartments and townhouses.
In combining the rules with characteristics, the overall picture reported in the responses is one of
considerable variation between councils. According to the index, the Waikato and Selwyn District Councils,
and the Wellington and Tauranga City Councils have the more stringent regulation, Waimakariri District
Council sits in the middle of the bunch and Christchurch City Council, QLDC, Whangarei District Council and
Hamilton City Council are the least stringent.
Responses were received from Christchurch City Council, Hamilton City Council, Queenstown Lakes District Council, Selwyn District Council, Tauranga
City Council, Waikato District Council, Waimakariri District Council, Wellington City Council and Whangarei District Council. Auckland Council declined to
participate.
14
The full report (NZIER, 2015) is available along with raw council responses on the Commissions website. While the NZIER methodology (survey questions
and weightings of responses) followed as far as possible the methodology of the WRLURI, some adjustments were made to account for the New Zealand
context.
15
The Commission is aware, for example, that Hamilton City Councils responses are inconsistent with the information contained in their submission to the
inquiry. Even so, the survey represents the first attempt at measuring land use regulation in New Zealand using an internationally recognised methodology.
16
53
54
Figure 2.17
Variation in the stringency of land use regulation across nine New Zealand councils
Less regulatory
stringency
Source:
More regulatory
stringency
NZIER, 2015.
Note:
1. The index combines the impact of rules and characteristics sub-indices formed from responses to particular survey questions.
The survey questions responses are weighted according to the weights within the WRLURI. Positive index values indicate more
stringent land use regulation, while negative values indicate less stringent land use regulation.
Delays in acquiring approval for development projects

The survey asks several questions about delays in the consenting and approval process. Five of the nine
councils report the statutory time for processing resource consents (20 working days), but differences are
large where they exist. The fastest two territorial authorities complete consents in less than a quarter of the
time of the five slowest. Wellington City Council and Waimakariri District Council report much shorter time
frames for attaining a consent than the other council respondents. Selwyn reports a relatively short time (less
than three months) for the amount of time between approving an application for subdivision and issuing
consent across a range of housing types. Figure 2.18 summarises the differences across councils.
Figure 2.18
Source:
Delays in acquiring approval for development across councils
NZIER, 2015.
Note:
1. The delay index is constructed by taking the response of average number of days to the question What is the current average
length of time required to complete resource consents for residential developments in your community? and the response of
average number of months to the question For apartments and townhouses, what is the typical amount of time between
application for rezoning and issuance of a building permit for development? The sub-index is normalised to have a mean of zero.
Delay has a relatively high weight in the WRLURI, but is excluded from the stringency index reported in Figure 2.17.
A survey of fast-growing New Zealand councils found universally restrictive land use
rules, but considerable variation in the overall stringency of land use regulation. This
variation is due in large part to:
F2.12
2.7
differing levels of influence over planning by the courts, regional councils and
community groups; and
differences in the time taken to get approvals for development.
Impacts on people and the economy
High land prices, regulatory barriers that restrict the supply of land (or prevent more efficient use of land)
and skewed housing production have a number of negative impacts on individuals and on the New Zealand
economy. New Zealanders pay a comparatively high share of their incomes on housing and face a housing
supply that is increasingly ill-suited to their needs. People on lower incomes have fewer opportunities to
enter the property market and accumulate wealth. The high cost of housing and a shortage of suitable
housing can lead to overcrowding. High housing prices also constrain the ability of the economy to adapt to
the demand for labour, and may lead to greater economic instability.
Housing market impacts

The price of housing and the share of income spent on housing costs
Housing costs are a function of the capital cost, the size of the mortgage that must be raised and mortgage
interest rates. If the cost of housing rises faster than the growth in incomes; the share of households
spending on housing will increase. 17 Figure 2.19 depicts the percentage of households that spend more than
30% of their disposable income on housing in New Zealand. The average share of disposable household
income spent on housing is high in New Zealand compared to many other OECD countries (Figure 2.20).
Figure 2.19
Share of households that spend more than 30% of their disposable income on housing in
New Zealand
30%
25%
20%
15%
10%
5%
0%
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Source:
17
Statistics New Zealand, 2014a.
This spending includes both rent and mortgage expenses.
55
56
Figure 2.20
Average share of disposable household income spent on housing: selected OECD

countries, 2012
Greece
New Zealand
Czech Republic
United Kingdom
Denmark
Switzerland
Italy
Japan
Canada
Turkey
Netherlands
Germany
France
Austria
Spain
Ireland
Belgium
Australia
United States
Chile
Norway
Korea
OECD - Total
0%
Source:
5%
10%
15%
20%
25%
30%
Statistics New Zealand, 2014a.
Note:
1. The reference year is 2012, with the exception of 2011 for Japan, New Zealand and Switzerland, and 2010 for Canada.
Housing and tenure choice

Restrictions on density prevent the construction of smaller and less expensive dwellings on smaller parcels of
land closer to the centres of cities. This means that people who do buy a property closer to the centre of a
city are restricted in their choice of housing type and may end up buying or renting a property that is larger
than they might have preferred. Restrictions on density also affect older people who might prefer to
downsize, but are unable to buy a suitable small home or townhouse in the area where they currently live.
Section 2.6 explained how higher land prices led to the production of larger and more expensive housing.
The tendency of New Zealand housing markets to produce larger, more expensive dwellings is likely to be
increasingly at odds with demand because of demographic trends. The average size of households is
forecast to shrink over the coming 20 years (Table 2.2). The number and proportion of couple-only and oneperson households is projected to increase with most of the expected growth in population coming from
single-person and couples-only households (Figure 2.21).
Table 2.2
Projected population and household growth, 20112031

Population
Households
People per household
2011
4 425 000
1 672 000
2.6
2031
5 149 000
2 089 000
2.4
Source:
Statistics New Zealand, 2010; 2012b.
Figure 2.21
Projected changes in New Zealand household types, 20062031

Total
Couple-only
One-person
One-parent family
Other multi-person
Two-parent family
0
500
1 000
1 500
2 000
2 500
Thousands
2006
Source:
2031
Statistics New Zealand, 2010.
An increase in the price of housing will be felt as a rise in property values for existing property owners and in
greater difficulty in making the first rung on the property ladder for people without property. This shows up
in declining home ownership (Figure 2.22) and the rising importance of the private rental market.
Figure 2.22
Percentage of households that owned or partly owned their dwelling or held it in a

family trust
70
60
50
40
30
20
10
0
1991
Source:
1996
2001
2006
2013
In its 2012 inquiry into Housing affordability, the Commission took the view that it is desirable that the
housing market work in such a way as to maximise the options available for housing for all New Zealanders
regardless of income or tenure choice. The Commission concluded that to achieve housing affordability a
housing market must have both depth and diversity of housing typologies and tenure choices.
Since the early 2000s, renting has been a more accessible option for many households. Rent increases have
been significantly slower than real house price inflation, with the ratio of rents to house prices declining as a
result. However, as the Commissions Housing affordability report explained, renting in New Zealand can be
57
58
insecure and the available stock may be of poor quality. Renters consistently report lower satisfaction with
the quality of their housing than owner-occupiers (Figure 2.23).
Figure 2.23
Percentage of people reporting major problems with their housing, by tenure type
60%
50%
40%
30%
20%
10%
0%
2012
2010
Owner-occupier
Source:
2008
Renter
Social impacts
A disproportionate impact on the less well-off
A number of studies have shown that more stringent land use regulations have a disproportionate effect on
the less well-off. A large US study quantified the impact of regulatory restrictiveness on the low end of the
rental and housing market in US cities (Malpezzi & Green, 1996). Bottom quartile rents in metropolitan areas
with more stringent land use regulation were 20% higher than in less stringently regulated areas and bottom
quartile house values were more than 60% higher. The largest price effects of restrictive land use regulations
occurred in the market for lower-value housing.
In work on the impact of Aucklands MUL, Zheng (2013) found that upward pressure on residential land
prices on Aucklands urban fringe had a much larger impact on prices at the lower end of the housing
market:
Lower priced land is more often found further out on the fringes of cities. When an artificial fence
delineates residential land from non-residential land on the urban fringe, it limits the supply of lower
priced land, with a resulting impact on prices at the lower end of the housing market. (p. 10)
The effect is a combination of an urban limit and other regulatory constraints that limit the density within the
city. Density controls tend to result in less well-off people moving out towards the urban fringe, while the
urban limit restricts the supply of lower-priced land on the fringe. This increases the price of housing at the
lower end of the market.
Household crowding
One manifestation of rising housing costs and a shortage of housing is household crowding. Although
household crowding in New Zealand has declined over time (Statistics New Zealand, 2012a), it has remained
high in Auckland (Figure 2.24). This is reflected in larger average household sizes, inadequate housing supply
in the city and higher housing costs. New Zealand has a higher crowding rate than the United Kingdom,
Canada and Australia, but a lower rate than the United States (Goodyear & Fabian, 2012). Around half of
people in crowded households in New Zealand in 2013 lived in Auckland.
Household crowding has been estimated as leading to more than 1 300 hospital admissions each year from
infectious diseases. Mori and Pacific Islands people are overrepresented in both crowding and infectious
disease hospitalisation figures (Baker et al., 2013).
Figure 2.24
Share of New Zealands population living in crowded and severely crowded housing,
19912013
Severely crowded
Crowded
10%
10%
8%
8%
6%
6%
4%
4%
2%
2%
0%
1991
1996
2001
Auckland
Source:
2006
2013
0%
1991
Rest of New Zealand
1996
Auckland
2001
2006
2013
Rest of New Zealand
Note:
1. Crowding is defined using the Canadian National Occupancy Standard (CNOS). CNOS defines a household as crowded if it fails to
meet all of the following characteristics: (1) Children aged under 5 may share a bedroom, but children aged 5 to 18 should only
share a room if they are of the same sex. (2) Couples and people aged over 18 should each have their own bedroom. (3) No more
than 2 people should share a room. Crowded means that one extra bedroom is needed to meet the CNO standard. Severely
crowded means that two or more extra bedrooms are required to meet CNOS.
Pressure on public finances

Ultimately, government bears part of the cost where unaffordable or inadequate housing leads to higher
demands on the welfare system to meet housing needs (through, for example, accommodation supplements
and state-sponsored social housing). These expenses are already significant, with yearly public financial
support to assist with the housing costs of individuals estimated to exceed $2 billion in 2015/2016. 18
F2.13
Stringent land use regulations have a disproportionate impact on the less well-off and
put pressure on public finances.
Impact on wealth and inequality

Recent research by Rognlie (2015) suggests that, in many countries, housing plays a much more important
role in income, wealth generation, and inequality than it once did. Rognlies work comes out of the debate
re-ignited by Thomas Piketty (2014) about the relative income shares between labour and capital. The central
thesis of Pikettys Capital in the Twenty-First Century is that the share of aggregate income of those who
own capital is increasing, while the share of those who generate income from their labour is decreasing. This
matters to the extent that capital income, which tends to be highly concentrated, can contribute to
inequality.
Rognlie makes several contributions, but as a purely descriptive matter he shows that the recent behaviour
of income shares is misunderstood. Rather than experiencing a steady rise, the net capital share for large
developed economies has followed a U-shaped trajectory in the post-war era, and its long-term expansion
originates entirely in the housing sector. This implies that Pikettys concern about a rising capital share being
concentrated in the hands of a few is unfounded, as home ownership is relatively broadly based. But, it also
raises concerns about the relative income share of those who own housing and those who do not. He
concludes that given the important role of housing, observers concerned about the distribution of income
should keep an eye on housing costs (p. 32). Rognlie goes on to note the particular concern that the rising
Includes the KiwiSaver Homestart Grant and Community Group Housing MCA (Vote Building and Housing), Part Payment of Rent to Social Housing
Providers and Accommodation Assistance (Vote Social Development).
18
59
capital share of income generated by housing may be as a result of land use regulation and other restrictions
on residential construction.
Muellbauer and Murphy (2008) comment on the issue of the high cost of housing and inequality in the
United Kingdom:
This is seen in the pricing out of the housing market of people without pre-existing housing equity or
family connections with such equity. This perpetuates disadvantage through the generations. Another
consequence of the rise in real house prices has been a redistribution of living standards between the
generations from those younger than their early thirties to older people. (p. 14)
Data limitations mean that Rognlies analysis of the relative income shares between labour and capital
cannot be repeated for New Zealand. However, analysis of the longitudinal Survey of Family, Income and
Employment reveals that:
Most of New Zealanders assets are in their homes with New Zealanders holding a similar proportion of
their net wealth in property as individuals in other OECD countries (Le, Gibson & Stillman, 2010).
Wealth is unevenly distributed. In 2010, the poorest 30% of the population had almost no wealth. About
20% of total wealth was shared by the bottom 70% of the population. By contrast, the top 20% of the
population owned almost 70% of total net wealth, with the top 10% owning more than half of the total
net wealth.
Homeowners in New Zealand have higher net wealth than non-homeowners. The absolute increase in
net wealth was higher for homeowners who owned a home throughout the entire period 20042010,
compared to those who owned a home for only part of the period or those who were not homeowners
over the period.
Owner-occupied housing is not an important component of net wealth for those with low net wealth, as
very few people in this part of the distribution own their own home. For those in net wealth deciles 5 to
9, housing makes up a significant share of net wealth. While the absolute amount of net wealth held in
the family home is greatest for those in decile 10, owner-occupied housing is a less important
component for this top decile because other assets account for a larger share of net wealth.
Figure 2.25
Average net wealth by decile
1400 000
1200 000
1000 000
Average, nominal $
60
800 000
600 000
400 000
200 000
0
1
-200 000
10
Net wealth decile

Owner-occupied house
Source:
Other property
Business
Trust
Financial
Bank
Other
Productivity Commission analysis of Statistics New Zealands Survey of Family, Income, and Employment data.
F2.14
Housing makes up a significant share of many New Zealanders wealth. High housing
prices have implications for the ability of some groups to accumulate wealth and for the
distribution of wealth across the community.
Economic impacts
Risks to macroeconomic stability
The stock of residential housing, valued at about $768 billion, is the largest component of wealth of
New Zealanders. Households also spend a significant share of their income on housing. Instability and poor
performance in the land supply and development market can be transmitted to wider economic volatility
and performance due to the links between house prices, credit availability, and household consumption and
indebtedness.
Huang and Tang (2012) in a study of 300 US cities showed that restrictive residential land use regulations and
geographic constraints are linked to larger booms and bust in housing prices. Evans and Guthrie (2012)
developed a model to determine what fraction of actual price changes observed in 95 US cities over the
period 19952010 could be explained solely by observed changes in construction costs, disposable income,
interest rates and population. A key question is whether cities with constrained development opportunities
due to geography and land use regulations experience much greater price volatility than less-constrained
cities. They found that, for cities with relatively unconstrained development opportunities, housing prices
could be predicted by changes in construction costs, disposable income, interest rates and population.
Further, they observed changes in these variables cannot explain the boom and bust pattern observed in
many other cities with constrained development opportunities. Importantly,
[s]mall reductions in the long-run average level of the short-term interest rate and small increases in the
long-run average growth rate in demand during the boom period generate large price swings in cities
with constrained development opportunities, while leaving prices in cities with unconstrained
development opportunities relatively untouched. For example, a one percentage point reduction in the
long-run average level of interest rates raises predicted prices by more than 80% in relatively
constrained cities with above-median demand growth rates and below-median property tax rates, and
by less than 10% in otherwise identical unconstrained cities. (p. 1)
Creating an artificial scarcity in land incentivises speculation, and competition for land creates overly
optimistic speculation. Milgrom and Weber (1982) point out that when people with varying beliefs compete
for something of uncertain value, the winning bidder will be the person who has made the greatest upward
error in estimating its value what they call the winners curse. Tideman (2004) argues that these winning
bidders are those least likely to invest in developing land now, because that would mean foregoing the even
greater investments that they (wrongly) imagine will be worthwhile when their imagined higher value arrives.
Henry George made this point in 1879:
The confident expectation of increased prices produces, to a greater or lesser extent, the effects of a
combination among landholders, and tends to the withholding of land from use, in expectation of
higher prices. (George (1960) [1879] p. 125)
Glaeser and Nathanson (2015) argue that buyers of land look at past prices to inform their future forecast of
the value of land; but that in doing so they wrongly assume that past prices reflected contemporaneous
demand when, in fact, they reflected past buyers (then) future expectations of value. This model leads
buyers to expect that recent house price increases will continue, to fail to anticipate the price busts that
follow booms, and to be overconfident in their assessments of the housing market. Glaeser and Nathanson
conclude that small errors in filtering information from past prices help to explain volatility, momentum and
mean-reversion in house prices.
Volatile house prices created by restrictive regulation can affect macroeconomic stability through wealth
effects. The owners of rapidly appreciating assets feel wealthier and may decide to spend some of these
capital gains in advance. This was seen in New Zealand during the house price boom of the past decade,
and remains a concern for the Reserve Bank as Auckland prices have risen rapidly again over the past few
years. As the Deputy Governor of the Reserve Bank commented in 2014:
house price increases could cause households to increase their spending, reducing savings and putting
additional pressure on overall domestic demand. The OCR [Official Cash Rate] increases that
commenced in March are aimed at countering emerging inflation pressures in general, but their
success, or otherwise, in moderating housing related pressures will be key. (Spencer, 2014, p. 12)
61
62
Interest rate rises to offset increased domestic demand increases the cost of borrowing to businesses and
may discourage investment. Higher interest rates also put pressure on homeowners with high debt levels
relative to their incomes (eg, new owners) and it becomes harder for people to enter the property market. As
a result, the wider community can end up bearing the costs of gains created by an unduly restrictive
planning system.
Constraints on labour market performance and productivity

Mobility of the labour force within and between regions and work locations helps to avoid labour market
shortages and reduces the divergence in income levels between regions (Yates, Randolph & Holloway,
2006). Ganong and Shoag (2012) show that the decline in regional convergence in the United States is due to
a large increase in housing prices and housing regulation in high-income and high-productivity areas.
Regulatory barriers make it harder for people from lower-income areas to move to higher-income areas and
enjoy the better employment opportunities available in higher productivity cities.
The impact of land use regulation in restricting labour market mobility and the potential for productivity
gains in the US economy from the reduction in regulatory barriers has been explored by Hsieh and Moretti
(2015). They argue that constraints to housing supply in high-wage cities price out workers who would be
more productive by moving to take up the opportunities available. Reducing regulatory barriers would
therefore increase a countrys GDP.
Constraints to housing supply reflect both land availability and deliberate land use regulations. We
estimate that holding constant land availability, but lowering regulatory constraints in New York, San
Francisco, and San Jose cities to the level of the median city would expand their work force and increase
U.S. GDP by 9.5%. (p. 34)
The authors conclude that restricting housing supply in dynamic labour markets imposes significant
externalities on a countrys economy.
F2.15
2.8
Restrictive land use regulations limit the ability of people to seek better employment
opportunities in cities, are a barrier to potential productivity gains, and may create risks
to macroeconomic stability.
Conclusion
Cities are national assets. When they function well, they contribute to higher national incomes and wealth
(through higher productivity) and better quality of life (through having sufficient scale to support a wider
range of amenities). It is in the countrys interest to have large cities that are able to grow and accommodate
the people who move to cities seeking the greater employment and life opportunities available there.
In the absence of constraints, cities will respond to population increases by making more efficient use of
land, through building higher buildings and smaller dwellings in their centres. The functioning of cities can
also be enhanced by well-targeted policy interventions, such as investments in transport infrastructure.
However, the interest of the nation in having cities grow may not be reflected in local choices and planning
systems. Local residents may not wish to bear the costs of growth (eg, congestion) and may act to slow or
constrain the development of their cities. Where such constraints arise, they can create costs and risks for the
wider public and especially for those on lower incomes. Easing unnecessary constraints to allow cities to
reach their full potential is a key focus of this inquiry.
Chapter 3 | Integrated planning
Integrated planning
Key points
Effective urban planning and development systems link decisions about land use (eg, zoning) with
the provision of infrastructure (eg, water) and other services, such as transport.
New Zealands planning system creates a complex web of legislative obligations and plans, which
can make it difficult to effectively and efficiently coordinate land use, transport and infrastructure
decisions.
Many of the local authorities within the scope of this inquiry have tried to overcome problems with
the legislative system by developing non-statutory spatial plans. These spatial plans act as linchpins
for other statutory plans and local authority strategies.
Little data is available about the relative effectiveness of spatial plans in releasing sufficient land for
residential development. Even so, submitters identified a number of benefits from such plans,
including greater intra-regional cooperation and understanding, more efficient infrastructure use
and investment, and a better ability to respond to crises or new policy initiatives.
Many spatial plans (and their associated Resource Management Act (RMA) plans) impose urban
limits and set density or intensification targets. The permanence of the urban limits or hardness of
density targets vary between individual plans. These policies need to be designed with care and
monitored, to avoid creating negative impacts on housing supply.
A number of local authorities expressed frustration at the statutory consultation and analytical
requirements involved in translating spatial plans into RMA regulatory plans. However, the
Commission considers that these statutory requirements help to ensure that land use regulation is
well-designed and that affected parties have the opportunity to be heard.
Speeding up the translation of spatial planning processes into land use regulation, without unduly
compromising analytical rigour or consultation, is likely to require the development of a new
legislative avenue for larger or faster-growing cities. This could combine infrastructure strategies,
longer-term transport planning, longer-term strategic thinking about the growth of the city by
councils and the development of land use rules.
The new legislative avenue for cities should be voluntary and tightly focused on activities of high
importance to the functioning of cities and the demand for land. Future plans prepared under the
new legislative avenue should be developed in partnership with the full set of central government
actors whose services matter for the functioning of cities. Given that greater central government
involvement in spatial planning may have fiscal implications, both Cabinet and the relevant local
authority should approve any future plans.
3.1
Introduction
A central task of this inquiry is to identify leading practices that enable the timely delivery of housing of the
type, location and quality demanded by purchasers, including in the areas of planning policies and
processes, infrastructure provision, and community engagement.
This and the following two chapters explore leading practices in planning. In identifying such practices, the
Commission has drawn on a number of sources, including:
official reviews of planning policy in Australia, New Zealand and the United Kingdom;
academic commentary on planning policy; and
63
64
submissions to this inquiry, and the Commissions engagement meetings with local authorities,
developers and other stakeholders.
In line with the inquirys Terms of Reference, the Commission focused on policies and practices that are
designed to promote the supply of development capacity for housing, especially for those on lower
incomes. The Commission therefore looked at those practices or policies consistently enacted or promoted
across jurisdictions that are facing housing affordability issues. The four thematic policies or practices
identified were:
1. Systems and processes for integrating land use, transport and infrastructure;
2. Strategies to encourage the supply and use of land;
3. Proportionate and well-targeted land use rules and regulations; and
4. Streamlined approval processes.
This chapter discusses item 1 above systems and processes for integrating land use, transport and
infrastructure. The following chapters will explore items 2, 3 and 4.
3.2
Integrated planning systems and processes
Effective urban planning and development systems link decisions about land use (eg, zoning) with the
provision of infrastructure (eg, water) and other services, such as transport. This helps ensure that:
land zoned for housing can be developed in a prompt fashion;
developers have some certainty about the future provision of infrastructure;
local authorities can manage the cost of new infrastructure and services; and
new residents are able to connect to the wider community.
Integrated planning and decision-making is the goal of many urban planning and development systems (eg,
see COAG, 2009; LGPMC, 2003 and 2009). In practice, however, it can be challenging to bring together
decisions and plans for land, infrastructure and other related services. In New Zealand, a key challenge is
integrating obligations and processes from three different pieces of legislation, each of which has different
purposes and timeframes.
Legislative framework
New Zealands planning and development system is governed by three main Acts of Parliament: 19
the Resource Management Act (RMA) 1991 authorises, limits or prohibits the use of land, so as to
promote sustainable management;
the Local Government Act (LGA) 2002 establishes processes to shape the provision of infrastructure that
is needed to make land viable for housing; and
the Land Transport Management Act (LTMA) 2003 establishes processes to shape the provision of
transport infrastructure and services.
Each Act creates its own set of institutions and processes.
Planning under the RMA

The Resource Management Act creates a hierarchy of plans and standards, starting with National Policy
Statements and National Environment Standards at the top, flowing down to District Plans at the bottom
(Figure 3.1). Each plan must give effect to those above it so a District Plan must give effect to the relevant
However, a host of other statutes have an impact on the planning and development system, including the Building Act, the Public Works Act, the
Reserves Act, the Property Law Act, the Unit Titles Act, the Health Act and the Local Government (Rating) Act.
19
Regional Policy Statement (RPS), and both the District Plan and RPS must give effect to a National Policy
Statement (NPS) or National Environmental Standard (NES).
Figure 3.1
Hierarchy of RMA plans
National Policy Statements

(NPS)
National Environmental
Standards (NES)
NZ Coastal Policy Statement
Function:
NPSs provide nationwide policy guidance for councils in dealing with
specific resource management issues.
NESs set nationwide technical standards to be followed in managing a
particular resource or environmental issue.
The Coastal Policy Statement sets out requirements for councils in their
day-to-day management of the coastal environment
Prepared by:
Central government
Regional Policy Statements

(mandatory)
Regional Plans (voluntary)
Function:
Regional Policy Statements identify significant regional resource
management issues, outline objectives, and set policies to achieve
those objectives.
Regional Plans set objectives and rules for the management of
specific resources (eg, water, air).
Prepared by:
Regional councils
District Plans (mandatory)
Function:
District Plans set out objectives, rules and policies governing land
use.
Prepared by:
District and city
councils
District Plans are the main tool used to regulate land use for housing, although other plans may affect
particular types of residential development (eg, building that affects a significant water supply may need to
comply with a regional water plan). In particular, District Plans lay out whether or not a particular
development activity can be carried out, and the sorts of regulatory tests that must be met before a consent
is issued. A common way of defining the sorts of activities that can be carried out is to set zones that is,
areas covering multiple sections of land, where particular activities are controlled in different ways
depending on their designation (eg, residential, industrial, and so on). Each territorial authority sets its
own rules and zones.
In preparing RMA plans (or changing existing plans), local authorities must follow a prescribed set of steps
laid down in Schedule 1 of the Act. These are discussed in more detail in Chapter 4. Under section 32 of the
RMA, local authorities must also prepare evaluation reports for new proposals 20 that examine:
the extent to which the proposals objectives are the most appropriate way of achieving the RMAs
purpose; and
the efficiency and effectiveness of the proposed provisions (eg, policies, rules, and so on).
Planning under the LGA

The Local Government Act (LGA) 2002 requires local authorities to prepare a Long-Term Plan (LTP) every
three years, covering a period of at least ten financial years. LTPs describe the local authoritys planned
activities and expected performance, the community outcomes it is pursuing, and forecast revenue and
expenditure. Local authorities must also prepare Annual Plans spelling out activities, revenue and
expenditure for the coming financial year. Unlike RMA plans, LTPs do not contain rules, although the LGA
empowers local authorities to make bylaws. In preparing LTPs and Annual Plans, local authorities are obliged
to follow statutory consultation processes (see Box 5.2 for more detail).
A number of elements of LTPs are particularly relevant to the supply of land for housing. For example, as
part of developing a LTP, a local authority must also prepare an infrastructure strategy, identifying
infrastructure issues over the next 30 years, the authoritys plans for maintaining and improving its assets,
20
This includes new plans and changes to existing plans (eg, new policies, rules, regulations or standards).
65
66
estimated expenses, and key decisions that will need to be taken about capital expenditure. Infrastructure
strategies and issues are discussed in more detail in Chapters 7 and 8.
Local authorities also use the LGA to develop non-statutory plans and policies that have an effect on the
supply of land for housing. Some of these are discussed further below.
Planning under the LTMA

The Land Transport Management Act 2003 governs the use of funding of major transport projects and
services, including road policing, public transport, and maintaining and developing the state highway
network and local roads. The LTMA establishes three levels of planning.
Through the Government Policy Statement on Land Transport (GPS), the Minister of Transport sets out
the overall objectives and long-term results sought by the government over the next ten years and the
minimum and maximum expenditure ranges for each class of transport activity. 21 A GPS must be issued
every three years.
The New Zealand Transport Agency (NZTA) then develops a 3-year National Land Transport Programme
(NLTP). The NLTP gives effect to the GPS and outlines the activities that will receive funding from the
National Land Transport Fund. These activities are selected from proposals prepared by regional land
transport committees, which include representatives of NZTA and the relevant regional and district/city
councils. 22
Activities proposed for funding in the NLTP must form part of a Regional Land Transport Plan (RLTP),
which outlines transport priorities, spending and expenditure over the coming ten years, and planned
local road maintenance and renewal and public transport services over the coming six years. RLTPs must
be prepared every six years by regional land transport committees (or Auckland Transport, in Auckland).
Once the NLTP is confirmed, local authorities can seek funding for activities carried out in their area.
A complex web of plans

The various requirements of the three Acts create a complex web of plans, with interactions at a number of
points (Figure 3.2). This complexity can make it difficult to effectively and efficiently coordinate decisions
around land use, transport services and infrastructure provision, as a number of groups and individuals have
observed. A Ministry for the Environment (MfE) discussion paper commented that the
[t]hree planning Acts were never designed to work together as a complete urban planning system. Each
Act, its plans and decision-making are all subject to different legal purposes, processes and criteria, and
operate over different time frames. This results in duplication and lack of clarity, and demands
considerable time and resourcing from all parties involvedThe complex urban planning system also
creates a lack of alignment between spending, policy, regulation and development. This means the
current planning system is not able to effectively engage or provide signals or sufficient certainty to
infrastructure providers and the private sector. (2010a, pp. 910, 11)
The Minister for the Environments Urban Technical Advisory Group reported that the
point is often made that the plethora of plans produces confusion, particularly when in some respects
they may if not actually be contradictory, will often be inconsistent.A particularly unsatisfactory feature
of this inconsistency is a lack of certainty which is introduced into decision making as regards future
economic activity. (Urban Technical Advisory Group, 2010, p. 64)
A number of submitters from local government echoed these arguments:

The Resource Management Act 1991 (RMA), the Land Transport Management Act 2003 (LTMA) and the
Local Government Act 2002 (LGA) are the key pieces of legislation that have implications for land
availability through planning. Trying to co-ordinate these three pieces of legislation in facilitating
development often makes the process slow and inefficient. (Waikato District Council, sub. 12, p. 1)
The current GPS has 10 transport activities: state highway improvements; state highway maintenance; local road improvements; local road maintenance;
public transport; walking and cycling improvements; regional improvements; road policing; road safety promotion; and investment management.
21
22
Auckland Transport plays this role in Auckland.
Trying to coordinate the three statues adds to the complexity of integrating good strategic thinking.
(Local Government New Zealand, sub. 54, p. 6)
While the Resource Management Act, Land Transport Management Act and Local Government Act
have different purposes, GWRC considers that there would be benefits to them being better integrated.
Within GWRC, we are able to align our plans and actions under each of the Acts, however, at a regional
level, there is little overall coordination and consistency between councils in implementing the statutes.
(Greater Wellington Regional Council, sub. 38, p. 2)
Integration between the three pieces of legislation is not as good as it could be. (Bay of Plenty Regional
Council, sub. 46, p. 4)
Others pointed to the focus of the RMA as the key factor complicating the planning process:
The environmental effects based approach of the RMA is an externalities based approach to resource
management. RMA decision-making is often made on a case-by-case basis at the expense of taking a
long term strategic or cumulative impact view of development. This fragmented approach to
development acts against well planned, efficient and integrated approaches to the provision of land-use
and infrastructure. (Wellington City Council, sub. 21, p. 13)
one of the fundamental difficulties is that the RMA has an effects based focus, so the enquiry can be
rather narrow and negative (ie, managing adverse effects). The central government drivers to build
economically competitive cities are more positive and from a nationally strategic viewpoint. While the
overall aims for greater cities are supported, translating such high-level objectives into local decisionmaking focused on managing adverse environmental effects is a giant leap of faith. (Tauranga City
Council, sub. 47, p. 9)
However, these concerns were not universally held by local authorities, and some rural councils appeared to
face fewer difficulties in integrating the three Acts:
There is more than sufficient scope within the RMA to achieve co-ordination and quality of outcomes in
the urban land development process. (Tasman District Council, sub. 25, p. 4)
Growth needs to be managed effectively and this can only be done through integrated management. In
the early days there were challenges, but Councils now have processes in place to ensure integration.
(Western Bay of Plenty District Council, sub. 36, p. 3)
Different timeframes across the various planning processes were another source of difficulty:
The RLTP [Regional Land Transport Plan] has a minimum 10 year timeframe allowing consistency to be
achieved with Governments 30 year infrastructure horizon, however local authority Long-term Plans and
statutory plans under the RMA have a 10 year planning horizonThere are considerable challenges
around the timing of separate but linked processes under the LTMA and LGA. For example, the current
RLTP must be finalised by April 2015 to enable the NZ Transport Agency to publish the National Land
Transport Programme in June 2015. Local authority transport programmes form a key part of the RLTP.
However, these programmes are developed through local authority Long Term Plan processes that are
operating according to different timeframes (finalised by June 2015). This means the RLTP needs to be
consulted on and finalised before the process of developing and consulting on local authority transport
programmes has been completed. (Bay of Plenty Regional Council, sub. 46, pp. 4 and 10)
The transport funding process requires long term planning; preparation of the Regional Land Transport
Plan (RLTP) has a lead time of about 18 months from initiation through consultation to adoption. The
RLTP is then in effect for three years. The Council Long Term Plan also has a long lead-in time and is
also in force for three years and has a 10-year planning horizon. (Auckland Transport, sub. 68, pp. 56)
F3.1
A number of parties expressed concerns about the interaction of the three main
planning Acts, and their collective impact on the ability of local authorities to coordinate
land use, transport and infrastructure decisions.
Local authorities within the scope of this inquiry use a number of methods to integrate land-use,
infrastructure and transport planning. These methods are often place-based instruments, ranging from
localised planning mechanisms (eg, structure plans that set out the layout of land uses, key infrastructure and
transport links, and provide a long-term planning framework for the future growth of a particular site) up to
city- or region-wide spatial plans. Much of the commentary and evidence collected through this inquiry
focused on the role of spatial plans, and the barriers to their effective and efficient implementation.
67
Figure 3.2
Stylised presentation of the planning and development system
Transport infrastructure (Land

Transport Management Act 2003)
Local
District Plan
Regional
Regional Land Transport Plan

(Regional Council / Auckland Transport)
The National Land
Transport Programme
gives effect to the GPS
Regional Land Transport

Plans must take into
account Plans, Regional
Policy Statements and
NPSs
A financial contribution
towards reserves or
infrastructure
enhancement may be a
condition of a resource
consent
Land use proposal
(Territorial local
authority)
Regional Land Transport

Plans give effect to the
GPS
Water & other infrastructure

(Local Government Act 2002)
Land use (Resource

Management Act 1991)
Plans and associated

rules / policies set
roading requirements
for new developments.
Conditions may be
applied to a resource
consent.
New transport infrastructure
New infrastructure
associated with land use
proposal
Regional Plan
(Regional Council)
Regional and District Plans must give

effect to the Regional Policy
Statement.
Regional Policy
Statement
Annual Plan
(Local authority and

Regional Council)
RPS and Plans
must have
regard to other
strategies (eg,
Long-Term
Plan, land
transport
plans)
(Regional Council)
Long-Term Plan
(Local authority and

Regional Council)
National Land Transport Programme

(NLTP)
(New Zealand Transport Agency)
National
68
A GPS must take account of

any NPS in force
Government Policy Statement (GPS)
(Central government)
National Policy Statement (NPS),

National Environment Standard
(NES), New Zealand Coastal Policy
Statement
(Central government)
All local authorities must give effect to a NPS,

NES or Coastal Policy Statement (eg, through
Plans or Regional Policy Statements, and
related policies and processes).
3.3
Spatial plans
Spatial plans are used in a number of countries and states, although their form and function varies between
jurisdictions. Broadly speaking, they try to:
identify the implications of demographic change and economic growth on the future demand for land
and infrastructure in a particular area and on the local environment;
set long-term (eg, 30-year) directions and goals for the growth and development of a city or region; and
translate those strategic goals and directions into a set of policies, priorities, programmes and land
allocations together with resources to deliver them (Office of the Minister for the Environment, 2009,
p. 6).
Spatial plans in New Zealand occur at metropolitan, sub-regional or regional levels. Five regional and two
metropolitan spatial plans are in place that cover the local authorities within the scope of this inquiry (Table
3.1). Only Auckland Council is legally obliged to prepare a spatial plan (the Auckland Plan). Sections 79 and
80 of the Local Government (Auckland Council) Act 2009 set down requirements for the Auckland Plans
contents and development. The other plans were prepared at the initiative of participating councils, using
the consultation processes in the LGA. None of the spatial plans have regulatory force on their own, and
must be translated into RMA regulatory plans (eg, Regional Policy Statements, District Plans) through an
additional process.
Table 3.1
New Zealand spatial plans
Spatial plan
Participants
Required
by
legislation?
Period
Whangarei
District Growth
Strategy
No
50 years (with a strong

focus on the next 30
years)
Whangarei Urban
Growth Strategy
No
20 years
The Auckland
Plan
Auckland Council
Yes
30 years
Future Proof
Waikato Regional Council, Waikato District Council,

Hamilton City Council, Waipa District Council,
New Zealand Transport Agency, Tangata Whenua
No
50 years
Hamilton Urban
Growth Strategy
Hamilton City Council
No
35 years
SmartGrowth
Tauranga City Council, Western Bay of Plenty

District Council, Bay of Plenty Regional Council,
New Zealand Transport Agency, Tangata Whenua
No
50 years (with a strong

focus on the next 20
years)
Greater
Christchurch
Urban
Development
Strategy (GCUDS)
Christchurch City Council, Selwyn District Council,

Waimakariri District Council, Environment
Canterbury, Te Rnanga o Ngi Tahu, New Zealand
Transport Agency
No
35 years
Wellington City Council is also in the process of preparing a 30-year Urban Growth Plan (UGP) that will bring
together its existing urban development and transport strategies. According to the Council, the UGP will
align land use and infrastructure planning and financial and asset management. This will provide certainty
of investment for the community, developers and the Government (sub. 21, p. 13).
69
70
Most of the territorial authorities that are the focus of this inquiry have spatial plans, or
are preparing them.
F3.2
Strategic focus
The seven spatial plans vary in the spread of issues they cover and their level of focus. The Auckland Plan is
the most expansive, with 13 strategic directions, 43 priorities and 74 targets. The targets cover a range of
matters, including immunisation levels, export growth, greenhouse gas emission levels, foreign language
fluency and home ownership rates.
The Hamilton and Whangarei Urban Growth Strategies have the narrowest focus, laying out the areas in the
two cities where growth will be focused in the short- and longer-term and encouraging development within
established urban areas. The remaining four spatial plans sit between the Auckland and Hamilton plans in
terms of the breadth of issues they cover, and have broadly similar areas of focus (Table 3.2).
Table 3.2
Areas of focus in selected New Zealand spatial plans
Whangarei District
Growth Strategy
Future Proof
(Waikato)
SmartGrowth (Bay of
Plenty)
Sustainable Economy
Centres of Community
Sustainable Environment
Resources and the

Environment
Strengthen Visionary
Leadership and Collaboration
Sustainable Society
Sustainable Culture
Sustainable Infrastructure
Services and Facilities

Governance
Strong and
collaborative
partnerships with
Tangata Whenua
Source:
Sustain and improve the

environment
Build the community
Grow a sustainable economy
Greater Christchurch
Urban Development
Strategy
Enhance environments
Enrich lifestyles
Encourage prosperous
economies
Effective governance and
leadership
Recognise Tangata Whenua

cultural identity and change
Integrated Planning and the
Settlement Pattern
Whangarei District Council, 2010; Future Proof, 2009; SmartGrowth, 2013a; GCUDS, 2010.
The spatial plans also have common design and implementation elements. All of the plans:
are based on population and household size projections, and make projections about the areas where
growth will occur and how much land will be needed;
act as linchpins or umbrellas for a number of other council strategies, plans and regulatory documents;
and
are supported by detailed implementation plans and monitoring arrangements.
Housing and land use

The various spatial plans typically seek to encourage integrated housing land use decisions through the
following mechanisms:
identifying future growth areas, where new or more intensive development will be enabled;
encouraging (eg, through density targets) or allowing more intensive development within existing urban
or town areas;
staging the release of land to ensure coordinated provision of infrastructure;
identifying major infrastructure projects required to support the release of land; and
requiring structure or outline development plans to be prepared before land is released or consented, to
enable detailed transport and infrastructure decisions to be taken alongside land use.
Benefits
In its performance benchmarking of Australian planning, zoning and development assessment systems, the
Australian Productivity Commission (APC) concluded that strategic land use plans (such as spatial plans)
could help avoid a misallocation of land types or development in sub-optimal locations (APC, 2011a, p. 135).
It is difficult to assess the relative effectiveness of New Zealand regions or districts with spatial plans in
releasing sufficient land for residential development, although some developers cited the Tauranga City
Council through the Western Bay of Plenty SmartGrowth Strategy[as] doing a good job in making land
available for housing (Te Tumu Landowners Group, sub. 40, p. 3; Bluehaven Holdings, sub. 42, p. 3).
Submitters to the inquiry pointed to a number of benefits from the spatial planning exercises, including
better regional cooperation and understanding, more efficient infrastructure investment and use, and an
enhanced ability to respond to crises and new policy initiatives (Box 3.1).
Box 3.1
Submitters views on the benefits of spatial plans
Better regional cooperation and understanding

The Agency sees considerable merit in these growth strategies, both in terms of providing a vision
for enabling future growth and as a means for fostering strong relationships between the key
stakeholders involved in the development process. (NZTA, sub. 73, p. 8)
Future Proof has provided a basis for growth to be managed in a collaborative way for the benefit
of the sub-region both from a community and physical perspective. This growth strategy provides
a framework for ongoing co-operation and implementation[it] has not only been extremely
useful in ensuring integration across the planning and development system but has enabled
effective discussions on planning and development to happen across political boundaries.
(Waikato District Council, sub. 12, p. 9)
The main advantage of the SmartGrowth approach is to bring together local government, tangata
whenua and central government agencies (such as NZTA) in determining agreed outcomes and
actions for growth management and community development in the Western Bay of Plenty
subregion. (Bay of Plenty Regional Council, sub. 46, p. 8)
Smart Growth in Tauranga has encouraged collaboration across different planning frameworks and
consideration of cross boundary issues. (Property Council New Zealand, sub. 33, p. 11)
Infrastructure efficiency
the Agency strongly supports the integrated planning and delivery of land-use and infrastructure
in order to optimise network efficiency, enhance value for money, and maximise transport benefits.
(NZTA, sub. 73, p. 4)
The change to the strategic planning approach was born from a realisation that infrastructure
needed to be rationalised and coordinated with growth areas, which then would allow the Council
to effectively plan how and where infrastructure was going to go and how it was going to be paid
for. (Selwyn District Council, sub. 45, p. 3)
Enhanced responsiveness
The Agency has noted that the relationships and trust built up over years of involvement in nonstatutory growth strategies has proven critical in recent initiatives to bring forward the release of
land for urban development, either as Special Housing Areas or as part of the Canterbury
earthquake recovery. (NZTA, sub. 73, p. 13)
The pre-earthquake work undertaken by the Greater Christchurch Urban Development Strategy
Partnership provided a key platform for the Christchurch recovery. (Canterbury Earthquake
Recovery Authority, sub. 61, p. 2)
Having clearly identified areas earmarked for development, for example, as under the Urban
Development Strategy (UDS), speeds up the decision-making process. (Environment Canterbury.
sub. 20, p. 4)
71
72
F3.3
Inquiry participants report a number of benefits from New Zealands spatial planning
processes, including greater intra-regional cooperation and understanding, more
efficient infrastructure use and investment, and a better ability to respond to crises or
new policy initiatives.
Q3.1
Is there other evidence of the benefits or costs from New Zealands spatial planning
processes that the Commission should be aware of?
3.4
The need for flexibility and vigilance
The focus of current spatial plans on focusing development within existing or pre-selected areas creates the
risk that they may unnecessarily constrain or distort development, in particular through:
the imposition of urban limits;
the pursuit of intensification or infill targets; and
goals around the protection of highly productive agricultural land.
These policy tools need to be applied with care. New Zealands spatial plans (and the regulatory plans that
implement them) vary in how much flexibility they allow to implement these tools.
Urban limits
In its Housing affordability report, the Commission found that binding urban limits are problematic, as they
tend not to be accompanied by greater opportunities for intensification within existing areas and therefore
push up land and housing prices (NZPC, 2012, pp. 11517). Instead, the Commission recommended that
councils adopt a strategy that allows for both intensification within existing urban boundaries and orderly
expansion beyond them and use alternatives to binding urban limits such as using infrastructure planning
to signal where development will take place (pp. 117 and 124).
Most of New Zealands spatial plans discussed above apply urban limits (Table 3.3), although they vary in
terms of their expected permanence. All of the limits have been designed with the aim of including sufficient
land for expected future urban development needs.
Table 3.3
Urban limits in areas with spatial plans
Spatial plan
Whangarei District
Urban limit
imposed?
No
Comment
Whangarei District Council has an Urban Transition Environment zone at
the fringe of the city where smaller-scale development can take place,
but where the Council will resist [infrastructure] service expansion on the
basis that it would constitute unplanned expansion of services beyond its
predetermined limits (Whangarei District Council, n.d., p. 1).
Auckland
Yes (proposed)
Proposed Auckland Unitary Plan would establish a Rural-Urban Boundary

(RUB) that defines the maximum extent of urban development to 2040
(Auckland Council, 2013c). All land within the RUB will be identified for
future urban use, with staged land release in approximately ten-year
steps (Auckland Council, 2012a, section D, para 138).
Future Proof
Yes (proposed)
Proposal to embed settlement pattern in the new Waikato Regional

Policy Statement
Spatial plan
SmartGrowth
Urban limit
imposed?
Yes
Comment
Settlement pattern embedded in the Bay of Plenty Regional Policy
Statement
Greater
Christchurch
Yes
Settlement pattern embedded in the Canterbury Regional Policy

Statement
The proposed Auckland Rural-Urban Boundary (RUB) is arguably the hardest limit, in that it is intended to be
a permanent rural-urban interface (Auckland Council, 2012a). In comparison, the operative Canterbury and
Bay of Plenty Regional Policy Statements, and the proposed Waikato RPS, contain provisions to modify and
review the settlement patterns. Method 14 of the Bay of Plenty RPS, for example, requires that
[g]rowth patterns within the western Bay of Plenty sub-region shall be regularly monitored and this
Statements provisions relating to urban and rural growth management shall be reviewed in the event
that monitoring shows that actual sub-regional growth patterns are or are likely to be such as to render
the growth strategy (see Section 2.8) inappropriate. Other triggers for review shall include the
occurrence of any one of the following:
(a) The population predictions in Figure 9 of the Western Bay of Plenty sub-region Growth Management
Strategy (3 May 2004) vary by more than 10% from actual Census figures for all of the growth for the
relevant Census period;
(b) It can be demonstrated that insufficient land exists within all of the Urban Limits shown on Maps 5 to
15 (Appendix E of this document) to cater for growth anticipated to occur within 10 years of the analysis;
(c) It can be demonstrated that exceptional circumstances have arisen in one or more of the
management areas shown on Maps 5 to 15 (Appendix E) and a review is necessary to achieve the
objectives of this part of the Statement;
(d) Any review of the Western Bay of Plenty Sub-region Growth Management Strategy amends the
strategy to the extent that the urban and rural growth management objectives, policies and methods
are in conflict; and
(e) As a result of Method 15 an amendment is required. (Bay of Plenty Regional Council, 2014, p. 175)
Method 16 allows minor amendments to the settlement pattern, where a certain set of criteria are met,
including where there is insufficient development capacity in other parts of the sub-region (Ibid, p. 176).
F3.4
Most of New Zealands spatial plans impose, or intend to impose, urban limits. The
limits vary in terms of their permanence and their ability to be adjusted in response to
market developments.
All mechanisms to review urban limits in current or proposed Regional Policy Statements are new; so it is too
early to assess their responsiveness to market changes. The SmartGrowth partnership has recently
commenced a review of its settlement pattern, to:
Identify new Urban Growth Areas required to accommodate the projected population
Confirm existing Urban Growth Areas
Confirm the amount of growth allocated to Urban Growth Areas
Confirm the sequencing of development of Urban Growth Areas
Confirm the infrastructure triggers required for development of Urban Growth Areas
Confirm projections for residential intensification. (SmartGrowth, sub. 27, p. 5)
Infill and intensification targets

All of the spatial plans seek further intensification of existing urban and town areas. However, they vary in the
aggressiveness with which intensification is sought (Table 3.4).
73
74
Table 3.4
Intensification/density targets
Spatial plan
Intensification/density / infill targets
Whangarei
District/Urban
No quantitative targets
Auckland
The Auckland Plan seeks to have 70% of new dwellings built within the 2010 Metropolitan
Urban Limit (MUL) by 2041, with flexibility to provide up to 40% outside the MUL. This
objective is reflected in the Proposed Auckland Unitary Plan (PAUP), which sets maximum
density limits for individual zones.
Future Proof / Hamilton

Urban
Future Proof seeks to reduce dispersed rural development from 17% to 12% of total
settlement, and to raise the proportion of growth in Hamilton City resulting from
regeneration from 40% to 50% (Future Proof, 2009, pp. 57 and 61).
Proposed Waikato Regional Policy Statement includes the following average gross density
targets:
SmartGrowth
Hamilton Central Business District (50 households a hectare);
Hamilton Intensification Areas (30 households a hectare);
Hamilton Greenfield [Rototuna, Rotokauri, Ruakura, Peacocke] (16 households a

hectare);
Greenfield development in Cambridge, Te Awamutu / Kihikihi, Huntly, Ngaruawahia,

Raglan/Whaingaroa and Te Kauwhata (1215 households a hectare); and
Greenfield development in Waikato District rural villages where sewerage is reticulated

(810 households a hectare).
Original settlement pattern was based on 7075% of residential urban growth being
delivered through greenfield expansion and 2530% through infill and intensification
development, primarily in Tauranga City.
The operative Bay of Plenty Regional Policy Statement embeds the 75: 25
greenfield/intensification goal and sets the following residential development yields:
Greater Christchurch
Greenfield urban growth areas: an average net yield of 12 dwellings or more per
hectare from 1 July 2012, rising progressively to 15 dwellings or more per hectare by 1
July 2037
Urban intensification areas: an average net yield of 20 dwellings or more per hectare
of developable land within each urban intensification area.
GCUDS seeks to shift the current 75% greenfield: 25% brownfield development pattern to
40%: 60% by 2041. This goal is embedded in the operative Canterbury Regional Policy
Statement. The Canterbury RPS also sets the following density targets:
10 lots or household units per hectare in Greenfields Areas in Selwyn and Waimakariri
District,
15 lots or household units per hectare in Greenfields Areas in Christchurch City,
50 lots or household units per hectare for intensification development within the City
Centre Area;
30 lots or household units per hectare for intensification development elsewhere as

identified in the Christchurch City Plan.
In practice, all planning processes set urban density levels through minimum lot sizes, height limits and other
land-use rules. The use of high-level targets in regulatory documents such as an RPS is potentially more
flexible and enabling than the traditional approaches, although the final effect will depend on how territorial
authorities choose to implement the RPS goals in their District Plans.
Density targets can be problematic where they are set too rigidly or too far ahead of consumer preferences
or market viability (Box 3.2). Where this is the case and steps are not taken to release land elsewhere, the
supply of development capacity will fall short of demand.
Box 3.2
Experience with infill and intensification in New Zealand
Western Bay of Plenty

The Western Bay of Plentys SmartGrowth spatial plan sets out where the future growth of the region
will occur, by agreeing a Settlement Pattern and setting targets for the types of residential
development. 75% of growth in dwellings in the region to 2051 is expected to be met through
greenfield development, with the remaining 25% to be delivered through infill (6%) and intensification
(19%).
But a 2012 review concluded that the 19% intensification target would be about 300 to 400% greater
than the recent trend for residential intensification and that it was difficult to successfully deliver
residential intensification, as apartments were more expensive to build in Tauranga than equivalentsized standalone dwellings. (pp. 4 and 6)
Nelson
Nelsons regulatory and non-statutory plans seek to achieve greater intensification, particularly around
transport nodes. However, Nelson City Councils 2012/13 effectiveness and efficiency review concluded
that intensification is not potentially occurring to the degree needed to adequately support public
transport or accommodate future population growth as anticipated in the NRPS [Nelson Regional
Policy Statement] and Nelson Urban Growth Strategies. (p. 83)
Source:
SmartGrowth / Tauranga City Council, 2012; Nelson City Council, 2013.
To avoid the risk of development capacity deficits, infill and intensification targets should be:
monitored and reviewed where market practice significantly diverges from the goals; and
designed with the commercial viability of targeted sites in mind.
New South Wales provides an example of how to develop commercially viable brownfield land-use rules. To
deliver on Sydneys new metropolitan plan (which intends to accommodate 70% of population growth within
existing urban areas), the NSW Department of Planning and Environment (NSWDPE) developed an Urban
Feasibility Model (UFM), in consultation with a number of independent bodies and industry partners. The
UFM calculates both housing potential (ie, the number of additional homes that could be built under a
particular local authority plan) and development feasibility ie, how likely it is that the market will deliver
these homes (NSWDPE, n.d., p. 1).
Housing potential is measured by taking into account the controls used in the relevant plan:
This includes land use zoning, floor space ratio, building height limit, minimum lot size and frontage,
building setbacks, communal and private open space, landscaping and car parking requirements. The
UFM also considers development constraints including heritage items, schools, existing strata plan and
community title, environmental constraints and committed community uses. (NSWDPE, n.d., p. 1)
Development feasibility is measured by incorporating

a range of development costs and revenues associated with developing the housing potential of each
site. This includes site acquisition, construction costs, approval and construction timeframes,
government fees and charges, holding costs, finance costs, sales and marketing costs, development
margins and sales prices of new product. Development costs and revenues vary depending on building
type, size and height, site location and tier of developers operating in the market. The UFM uses a range
of key performance indicators including Internal Rate of Return (IRR) and profit on cost to determine
whether a site is feasible to develop or not. (ibid)
75
76
Tools like the UFM allow planning documents and controls to be tested for their impact on actual
development capacity. It also provides a common methodology that developers, officials and local
authorities can use to consider different planning options, rather than resorting to competing consultants.
The NSWDPE is currently using the UFM to test how well local authority plans provide for economically
feasible development and to indicate how specific changes to planning controls could increase
development levels (Box 3.3).
Box 3.3
Applying the Urban Feasibility Model to the Illawarra region
The UFM was used to assess the differences between the potential numbers of dwellings permitted
under planning controls in the New South Wales region of Illawarra. The assessment indicated that
there is a significant zoned capacity for new housing in existing urban areas across the Illawarra
under current planning controls almost 215,000 potential new dwellings. The UFM also reveals,
however, that the realistic and feasible capacity is a much smaller 24,100 dwellings
Changes to planning controls were tested to see if this would increase the level of feasible
development. The UFM showed that there are some changes to planning controls that will
increase the supply of feasible development in certain areas, for example, lot width controls in
Wollongong, and height and density controls in Kiama, however, changes to planning controls in
most other areas are unlikely to make housing more feasible, given the mismatch between what
people are prepared to pay for that form of housing and the costs of development.
Development type
Single-dwelling Housing
Multidwelling Housing
Apartments
TOTAL
Source:
Dwelling potential
Feasible potential
Feasible %
9 500
5 600
59%
145 000
12 200
8%
60 500
6 300
10%
215 000
24 100
11%
NSWDPE, n.d.
A similar tool could be useful for New Zealand local authorities, especially given the debates about the gaps
between the theoretical and actual development capacity provided by the Proposed Auckland Unitary
Plan (see Chapter 4), and comments from submitters that existing local authority feasibility models are overoptimistic in their assessments. Queenstown Lakes District Council, for example, noted that revisions to their
Dwelling Capacity Model in 2014 reduced the expected capacity of the citys urban areas. According to the
council, the
lack of sophistication in the model has meant that for a number of years dwelling capacity has been
significantly overstated. As a result planning decisions around density may not have been as enabling as
they should have been adding to the housing demand / supply imbalance. (sub. 56, p. 2)
F3.5
Infill and intensification targets that are set too rigidly or too far ahead of consumer
preferences or market viability can reduce the supply of development capacity.
R3.1
Urban local authorities that wish to set design infill/intensification targets should ensure
that their District Plans provide sufficient commercially viable development capacity.
F3.6
The New South Wales Urban Feasibility Model is a leading practice tool that can be
used to develop and test commercially viable brownfield land-use rules.
The Ministry for the Environment should explore the potential to develop an Urban
Feasibility Model that New Zealand local authorities can use.
R3.2
Highly productive agricultural soils

A number of the spatial plans and associated RMA plans include goals or policies aimed at protecting high
productive, versatile or elite soils from residential development (Table 3.5). Such soils are very fertile and
can be used for many purposes.
Table 3.5
Agricultural soil protection goals and policies
Spatial plan
Policies/goals
Reflected in RMA regulatory plans?
Whangarei
Growth Strategy
There is a need to avoid or reduce access to

locations that have substantial natural hazard
constraints, or are home to high quality soils (2010,
p.169).
Yes: objective 6.3.13 and policy 6.4.10 of

Whangarei District Plan
Auckland Plan
Proposals for expanding rural towns and villages

must avoid urbanisation of highly productive
farmland and versatile soils where possible, and
maintain adequate separation between
incompatible land uses (Directive 9.5)
Yes (proposed): rural subdivision policies

29 and 35 of Proposed Auckland Unitary
Plan
Future Proof
Take into account the loss of highly versatile land

in determining the location and form of future
urban development in the Future Proof sub-region
to minimise the loss of highly productive land
when amending the RPS and district plans to
anchor the Future Proof Strategy (2009, p. 71).
Yes (proposed): objective 3.25,

implementation methods 6.1.4 and 14.2.1,
Section 6A, policy 14.2.1 of proposed
Waikato Regional Policy Statement
SmartGrowth
Continue to regulate for minimum lot sizes that

will enable productive use of versatile soils for
primary production, and monitor effectiveness of
regulation (2007, p. 94)
Yes: Policy UG 19B, objective 26 of the Bay

of Plenty Regional Policy Statement
Greater
Christchurch
Versatile soils should be protected where practical

(2007, p. 26).
Yes: Policy 5.3.2 of the Canterbury

Regional Policy Statement
Objective 1A.6.1 of Waikato District Plan
Policy B.1.1.8 of the Selwyn District Plan

Source:
Auckland Council, 2012a & 2013c; Bay of Plenty Regional Council, 2014; Environment Canterbury, 2013; Future Proof, 2009;
GCUDS, 2007; Selwyn District Council, 2008; SmartGrowth, 2007; Waikato Regional Council, 2013; Waikato District Council,
2013; Whangarei District Council, 2007 & 2010.
F3.7
A number of local authorities have goals in their spatial and RMA plans to protect highclass agricultural land from residential development.
Policies to protect agricultural land from development are supported by farming organisations. Federated
Farmers in its submission expressed its concerns with
the potential implications for New Zealands productive capacity if further land for housing is developed
without considering the impact on our productive capacity, particularly in the area of greenfield
development. (sub. 51, p. 3)
Horticulture New Zealand said the primary issue for them was the impact of urban sprawl on rural
production systems, as the impact of poor decisions could be catastrophic on the productive capability of
nationally significant production land and threaten food security (sub. 64, p. 2). Horticulture New Zealand
has been actively participating in the planning system to discourage the use of rural subdivision to support
the erection of new dwellings and prevent the expansion of urban areason to elite or prime land (p. 4).
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78
In their own assessment, Horticulture New Zealand has been successful for many years in restricting
greenfield land supply in trying to minimise urban expansion across elite and prime land (ibid).
Local authorities have an obligation to consider the impact of different land use activities on soil and on
agricultural activity. The purpose of the RMA is to promote the sustainable management of natural and
physical resources, which is defined in section 5(2) as including safeguarding the life-supporting capacity
of air, water, soil, and ecosystems. In addition, one of the aims of zone-based planning systems is to
prevent incompatible activities co-locating and to manage pressures on existing land-use activities arising
from new activities (commonly referred to in New Zealand as reverse sensitivity).
However, there are a number of issues with regulatory approaches that seek to prevent the expansion of
cities into nearby agricultural land. Tensions between the growth of cities and agricultural activities are
inevitable, since many cities in New Zealand are located near land that is, or has been, used for agricultural
purposes and land uses change over time in response to differing demands. Andrew and Dymond (2013) cite
a newspaper article from 1916 bemoaning the subdivision of market garden land in the Hutt Valley land
that now hosts two cities and about 140 000 people (p. 128).
Tensions between the growth of cities and agricultural activities are inevitable, since
many cities in New Zealand are located near land that is, or has been, used for
agricultural purposes.
F3.8
Efforts to prevent urban sprawl may also not be the efficient and effective way to protect elite or highclass agricultural land. Cities make up a very small share of New Zealands land. According to the MfEs
Land Cover Database 2, artificial surfaces such as urban and built up areas, landfills and transport
infrastructure made up 0.8% of New Zealands land mass in 2002. And while the amount of New Zealands
land cover made up by artificial surfaces increased between 1997 and 2002, this increase was roughly of the
same magnitude of increases due to horticulture and other native land cover, and a small fraction of
increases due to exotic forestry (Table 3.6).
Table 3.6
Changes in New Zealands land cover between 1997 and 2002
Land cover class
1997 area (hectares) 2002 area (hectares) Change in area (hectares)
Exotic forest
1 822 300
1 961 800
139 500
370 900
363 300
-7 600
Native forest (including mangroves)
6 485 400
6 483 100
-2 300
Native vegetation
5 263 400
5 248 500
-14 900
Other native land cover
1 588 400
1 589 100
700
413 000
417 400
4 400
High-producing exotic grassland
8 985 200
8 885 800
-99 400
Low-producing grassland
1 678 100
1 652 300
-25 800
215 000
220 500
5 500
26 821 600
26 821 600
Exotic shrubland
Primarily horticulture
Artificial surfaces
Total
Source:
MfE, n.d.
Note:
1. Figures rounded to the nearest 100 hectares
Further, as Andrew and Dymond (2013) note, while 29% of new urban development since 1990 has occurred
on high-class land, this represents only 0.5% of all high-class land (p. 137). By comparison, lifestyle blocks
occupy 873,000 ha, or about 5% of New Zealands non-reserved land. One-sixth (17%) of these are located
on high-class land (ibid).
F3.9
The expansion of cities is not the largest threat to elite or high-class productive land.
Lifestyle blocks are clearly valued by many New Zealanders, and represent a valid housing choice. The
findings of Andrew and Dymond raise questions about the zoning practices of some local authorities that
control rural subdivision by requiring large minimum lot sizes at the fringes of cities or in other rural areas.
Large minimum lot sizes may reduce the risk of reverse sensitivity, by creating an effective buffer between
housing and agricultural activities. But they also seem likely to unnecessarily tie up large areas of land. For
example, about 112,000 hectares of land within the Auckland Council region is currently recorded on the
District Valuation Roll as being used for lifestyle purposes 23. This area of land is larger than the former
Auckland City Council. 24 As a result, large rural lot size requirements may not result in the efficient use of
land for housing.
F3.10
Zoning practices that require large minimum lot sizes in rural areas may not be the best
way of protecting life-supporting soils and are unlikely to encourage the most efficient
use of land for housing.
R3.3
High-growth territorial authorities should review their zoning rules for rural land, to
ensure they provide the right balance of promoting efficient use of land for housing and
minimising reverse sensitivity risks.
Finally, it is worth recalling that land, like any other resource, will tend to migrate towards its highest value
use. Even where land is used solely for agricultural uses, it may shift between raising sheep and beef to dairy
or forestry, depending on the relative prices of each primary product. Where land prices for housing are
high, it is not surprising that there will be pressure to convert land from agricultural to residential uses.
Land prices for residential housing are not always higher than prices for other uses. Indeed, the Commission
heard from its engagement meetings in the Western Bay of Plenty that a barrier to further residential
development in some parts of the region was high kiwifruit prices, which were increasing the value of
agricultural land. Brueckner (2000) similarly notes that
evidence has shown that in regions where agricultural land is productive and its value high, cities are
more spatially compact than in regions where agricultural land is unproductive and therefore cheap.
(p. 162)
F3.11
Land, like any other resource, will tend to migrate towards its highest value use. Prices
indicate the highest and best use of a particular section of land. In some cases, the
highest value use will be residential housing; in others, it will be agriculture or
horticulture.
Prices contain information about the highest and best use of a particular section of land (unless the supply is
artificially constrained in some way). As was discussed in Chapter 2, in an unconstrained market, land prices
tend to be highest towards the centre of a city, reflecting proximity to employment and valuable amenities.
Land prices then decay, as the distance from these amenities increases. In theory, the price differential
between urban land at the edge of a city and the neighbouring agricultural land should be small. In practice,
this is not the case. Productivity Commission research found that land within the old Auckland Metropolitan
Defined as being generally in a rural area, where the predominant use is for a residence and, if vacant, there is a right to build a dwelling. The land can
be of variable size but must be larger than an ordinary residential allotment. The principal use of the land is non-economic in the traditional farming sense,
and the value exceeds the value of comparable farmland (Land Information New Zealand, 2010, p. 6).
23
Auckland City Council was disestablished as the result of the creation of Auckland Council. However, in the 2006 Census, about 400 000 people lived in
Auckland City.
24
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Urban Limit (zoned for residential use) was over eight times more expensive than land outside the Limit,
indicating unmet demand for residential land. (NZPC, 2012, p. 116).
If agriculture is a higher-value land-use than housing, this will be reflected in the price of land and there will
be no incentive to convert that land into residential use. Planning rules and policies which restrict the ability
to convert agricultural land to residential use can inflate prices for existing residential land, and artificially
suppress the price of neighbouring land. Allowing neighbouring land to be more easily converted would
help ease these pressures, allow land to move to its most valued end, and improve overall welfare. Large
land price differentials between different types of zones should be a trigger for local authorities to review the
adequacy of their land supplies and zoning decisions.
Large land price differentials between different types of zones, such as those observed
in Auckland, should be a trigger for local authorities to review the adequacy of their land
supplies and zoning decisions.
R3.4
3.5
Options for closer integration
Although a number of parties identified the existing spatial planning processes as a leading practice in
promoting integrated land use planning and decisions, it was also clear that creating spatial plans did not
resolve the fundamental tensions and problems in the legislative framework. If anything, spatial plans can be
seen as a workaround. Local authorities still needed to translate spatial plans into the different statutory
plans (eg, District Plans, LTPs and RLTPs). A number of submitters expressed particular frustration at the
statutory consultation requirements involved in translating spatial plans into RMA regulatory documents (Box
3.4).
Box 3.4
Problems translating spatial plans into regulatory documents

Spatial plans are implemented through a variety of delivery mechanisms, including RMA
plans/policy. As the law stands, even though a spatial plan goes through considerable consultation
with the community, the RMA requires a separate consultation process to embed it into a statutory
plan developed under the RMA, and includes possible appeal to the Environment Court. (sub. 38,
p. 3)
Selwyn District Council

Even though a spatial plan goes through considerable consultation with the community, the RMA
requires a separate consultation process to embed it into a statutory plan developed under the
RMA. This entails additional process and in addition is subject to appeal to the Environment Court.
There is no explicit weighting in law to be given to a plan in the development of the subordinate
RMA plan. (sub. 45, p. 14)
Western Bay of Plenty District Council

Spatial plans (in our case SmartGrowth), Regional Policy Statements and District Plans are
hierarchical in nature, with objectives and policies in each being reflected in each subsequent
level. Despite the fact that each goes through a rigorous consultative process, every objective and
policy is subject to re-litigation in each plan or policy document. An option to overcome this is that
objectives and policies already adopted should be able to be incorporated in lower level plans
without the need for further consultation and not be subject to further challenge as they have
already been through that scrutiny. (sub. 36, p. 4)
Future Proof
The Future Proof Strategy was prepared under the Local Government Act 2002, through a
consultative process whereby the community had the opportunity to provide feedback. The
Strategy was then implemented through numerous statutory documents including the Waikato
Regional Policy Statement, Waikato Regional Land Transport Plan, New Zealand Transport
Authoritys programmes and strategies, partner councils district plans, policies and bylaws, long
term council community plans, and tngata whenua plans and strategies. Future Proof successfully
integrated the Strategy into these statutory documents, but this required significant effort (time
and resources), in particular, delaying the outcomes of the Strategy. Although the Strategy went
through considerable consultation with the community, the RMA required a separate consultation
process to embed it into statutory documents. (sub. 39, p. 6)
Local Government New Zealand

A spatial plan is implemented through a variety of delivery mechanisms, including an RMA
plan/policy. As the law stands, even though a spatial plan goes through considerable consultation
with the community, the RMA requires a separate consultation process to embed it into a statutory
plan developed under the RMA. This entails additional process and, in addition, is subject to
appeal to the Environment Court. (sub. 54, p. 6)
New Zealand Transport Agency

there can be significant effort, cost and churn involved in translating non-statutory growth
strategies into the statutory implementation documents prepared under the Local Government
Act (Long Term Plans, Annual Plans), Resource Management Act (Regional Policy Statements,
Regional and District Plans) and Land Transport Management Act (Regional Land Transport Plans).
(sub. 73, p. 8)

An important aspect of planning for future housing supply needs in Hamilton has occurred through
the Future Proof strategy and the Hamilton Urban Growth Strategy. The development of these
strategies occurred under the Local Government Act 2002 special consultative procedures.
However, in order to embed these into RMA documents to give the strategies sufficient statutory
weight, further processes such as a Regional Policy statement Review, district plan
changes/variations and reviews, have been undertaken. These have taken around 5 years in total to
date and some of the processes are still not complete. (sub. 70, p. 14)
F3.12
Duplicative statutory consultation requirements make it time-consuming and costly for

local authorities to translate spatial plans into RMA regulatory plans.
Many of these submitters argued that, since the spatial plans had already gone through LGA-based
consultative processes, a streamlined mechanism for amendments to RMA plans should exist that reflects
the goals of a spatial plan. For example, Future Proof supported processes where spatial plans are:
embedded into statutory documents in a streamlined process (adopted faster) without the
duplication of planning processes; or
given legal status under the RMA (sub. 39, p. 6).
Local Government New Zealand (LGNZ) similarly recommended that greater status is needed for a
plan/strategy prepared under the LGA to a plan/policy under the RMA (sub. 54, p. 6).
The Commission considered these two options, but concluded that they either were unlikely to speed up the
process of translating spatial plans into regulatory documents or presented significant risks.
Strengthening recognition of other plans in the RMA

LGNZ noted in its submission that the
weighting in law which is given to a plan prepared under another statute is relatively light. S.66(2) and
74(2) of the RMA requires a local authority to have regards to a management plan/strategy plan
prepared under another statute when preparing a regional plan/district plan. And a decision on a
resource consent can take a spatial plan into account as an other matter under s.104(1)(c). (sub. 54,
p. 6)
One approach would be to amend the RMA, so that each District Plan, Regional Plan and RPS was required
to give effect to spatial plans prepared under the LGA.
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While this would give greater weight to spatial plans in law, in practice it would be unlikely to significantly
speed up the process of translation. Local authorities would still face statutory obligations to:
prepare an evaluation report assessing whether the proposed objectives are most appropriate way to
give effect to the purposes of the RMA, and whether the proposed action is the most appropriate way of
achieving the objective (section 32 of the RMA); and
consult with the public on proposed plan changes (Schedule 1 of the RMA).
F3.13
Strengthening the recognition in the RMA of plans prepared under other statutes would
be unlikely to significant speed up the translation of spatial plans into District Plans.
Removing or relaxing RMA analytical or consultation obligations

The second option would be to remove or relax the obligations in the RMA to prepare evaluation reports or
consult with the public on proposed changes to regulatory plans. Many of the submitters cited in Box 3.4
argued that the RMA obligations were unnecessary, as the processes of developing the spatial plans had
already involved public consultation.
Removing or significantly relaxing RMA consultation and analytical obligations would speed up the
translation of spatial plans into regulatory documents. However, it would also create potentially significant
risks.
The first issue is that people affected by the regulatory effects of a spatial plan may not have participated in
the original consultation on that plan. As Tauranga City Council note, it is the translation of strategic
aspirations into the formal regulatory mechanism of the district plan that ups the game for most people
(sub. 47, p. 8). Alternatively, even if people had participated in consultation on the strategic spatial plan, the
direct regulatory implications of that plan may not have been clear. Fast-tracked translation of spatial plan
objectives into RMA plans could lead to regulation being introduced without those affected being able to
understand its impacts or respond. This would run counter to the consultation principles identified in the
Commissions Regulatory institutions and practices report (NZPC, 2014, pp. 14445).
The second risk is that allowing for fast-tracked translation of spatial plan objectives into RMA plans may
allow new regulation to be introduced without an appropriate level of analysis. Both the LGA (under which
most spatial plans in New Zealand are developed) and the RMA require local authorities to consider a range
of options and their costs and benefits, but the RMA is more prescriptive in its obligations. Decision makers
following the LGA decision-making provisions may well ask similar questions and make similar assessments
as they would under the RMA, but need not do so. This prescription may reflect the fact that provisions in
RMA plans (unlike LGA documents) can have regulatory force, and therefore need to be designed with
particular care. Further, the obligations on local authorities to conduct robust analysis before introducing
new rules or provisions into RMA plans have recently been strengthened (Box 3.5).
Box 3.5
Recent changes to section 32
The Resource Management Amendment Act 2013 set out new requirements for preparing and
publishing evaluation reports:
Benefits and costs of effects: Section 32 now specifies that the assessment of the benefits
and costs relates specifically to environmental, economic, social and cultural effects
anticipated from the implementation of the provisions.
Economic growth and employment opportunities: As part of the assessment of benefits

and costs, the section now requires an assessment of the opportunities for providing or
reducing economic growth and employment.
Quantification: Benefits and costs are now required to be quantified, where practicable. This
seeks to ensure decision-makers have the best information on which to make decisions.
Other changes in the Amendment Act require that evaluations must contain a level of detail that
corresponds to the scale and significance of the effects anticipated by the proposal. This ensures the
detail in the evaluation reports is tailored to the likely effects anticipated from implementing the
proposal.
Source:
MfE, 2013a.
More broadly, the Commission has identified inadequate underpinning analysis as a source of unnecessary
and unduly costly land-use regulation (Chapter 5). Removing the section 32 requirements for spatial plan
changes would not support the objective of more efficient, better-targeted regulation.
Finally, previous experience in preparing regulatory plan changes that give effect to spatial plans suggests
that the RMA statutory process requirements can lead to outcomes that better reflect community needs. In
the case of Proposed Change 1, which sought to introduce the Greater Christchurch Urban Development
Strategy into the Canterbury Regional Policy Statement, the process of seeking submissions and hearings
led Commissioners to include additional greenfield land within the proposed urban limit to meet the
communitys need to be able to choose from a range of living locations (Environment Canterbury, 2010,
p. 2).
F3.14
Removing or relaxing RMA consultation and analytical requirements to enable faster

translation of spatial plans into District Plans would increase the risk of poor-quality
regulation.
Creating the option of a new statutory plan

The third option would be to create a new planning avenue that combined elements of the three main
planning Acts and gave statutory support for strategic thinking about the growth of cities. Given the differing
purposes of the three Acts and the problems of multiple regulatory objectives (discussed in Chapter 5), this
would most likely require separate legislation with a single purpose (eg, to provide for the effective,
efficient and sustainable development of cities and urban environments). Plans could be constructed in a
number of ways, but one logical combination would include:
30-year infrastructure strategies (as currently required by the LGA);
longer-term transport planning;
longer-term thinking about the growth of the city and its implications for land use, services and the
environment; and
the development of associated land-use rules (as currently occurs through the RMA).
Existing processes such as LTPs and Annual Plans would remain separate, as they focus more on service
delivery and need to remain flexible and responsive to changing community and council priorities. However,
these processes would be informed by the new spatial plans.
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F3.15
The best opportunity to integrate spatial planning and land-use regulation is to create a
new, legislative avenue for larger cities. Such an avenue would allow a local authority to
develop a plan that combined:
30-year infrastructure strategies;
longer-term thinking about the growth of the city; and
the development of associated land-use rules.
To be most effective, the new planning avenue would need:
to be focused on the key activities that matter for the growth and development of cities;
to be a voluntary option for larger cities or fast-growing areas;
greater central government involvement; and
processes to encourage high-quality regulatory design.
A tighter focus
As discussed above, the current New Zealand spatial plans vary in the range of topics they cover and the
number of targets and objectives they pursue. Cities will naturally differ in the types and breadth of goals
they wish to achieve, but large numbers of objectives are likely to impede the development of efficient
regulation, as the Commission concluded in its Regulatory institutions and practices report
(NZPC, 2014, pp. 199200).
The main advantage of spatial plans is the ability to consider the longer-term implications of population
change and economic growth on a particular area, and the use of its space. Yet a number of current
New Zealand spatial plans include goals or targets that have no strong relation to the demand for land or
space.
F3.16
Large numbers of objectives in spatial plans, and goals that have no strong relation to
the use of or demand for land, are likely to complicate the implementation of these
plans and the development of efficient regulation.
Spatial plans are more likely to be effective when they concentrate on activities that:
are of high importance to the functioning of cities and the provision of development capacity for housing
(eg, land supply, infrastructure provision, transport services);
relate closely to the use of land or space and the management of negative externalities; and
are most efficiently dealt with at a local level and through local authorities.
All of the spatial plans the Commission examined had multiple objectives, with varying degrees of relation to
the use of land and local authorities fields of direct influence. For example, while reducing greenhouse gas
emissions from transport is clearly desirable, this goal is better achieved through national policies (such as
the Emissions Trading Scheme) that directly target emissions rather than through a series of regionally
specific land-use rules with indirect effects that are hard to predict. Similarly, vaccination rates and foreign
language fluency rates are most amenable to action by central government agencies and have no strong
relationship to the use of or demand for land.
R3.5
A new legislative avenue should be designed to focus spatial plans on activities that:
are of high importance to the functioning of cities and the provision of development
capacity for housing (eg, land supply, infrastructure provision, transport services);
relate closely to the use of land or space and the management of negative
externalities; and
A voluntary option
Spatial plans work best for larger cities and, as noted above, a number of rural councils reported facing
fewer difficulties in making the three Acts of the current planning and development system work together.
As noted in the Commissions Towards better local regulation report, a number of rural councils face
challenges in attracting and retaining capability. About a third of rural councils are forecast to face declining
populations in their areas over the coming decades (NZPC, 2013, p. 5). To avoid imposing unnecessary
processes and costs on smaller regions or rural councils, the planning avenue would need to be optional.
This would allow other local authorities to continue to use the existing legislative frameworks if they
preferred.
R3.6
The new planning avenue should be voluntary to allow local authorities to choose the
statutory planning mechanisms that best suit their circumstances.
Wider central government involvement

The timely and adequate provision of social services (such as education and health) matters for the growth of
cities, especially as new suburbs emerge and the intensification of developed areas puts pressure on existing
facilities. Throughout this inquiry, the Commission heard concerns expressed by local authorities and
developers about the speed and effectiveness with which social service provision kept pace with population
growth in urban areas.
New Zealand has one of the most centralised structures of government in the developed world. In 2010,
spending by New Zealand local governments as a proportion of all public expenditure was the third lowest
in the Organisation for Economic Co-operation and Development (OECD), and the second lowest as a
proportion of Gross Domestic Product (GDP) (Junghun & Vammalle, 2012, p. 90). And unlike comparative
governments in a number of other OECD countries, local authorities in New Zealand play little to no role in
providing educational and health services (ibid, p. 94). Central government therefore has a key role to play in
supporting the growth of cities.
Yet central government currently plays a very small part in New Zealands spatial plans. The main central
government actor in current New Zealand spatial plans is the NZTA, whose primary objective is to promote
transport outcomes, not housing or other urban objectives. In comparison, many Australian metropolitan
plans have a wider range of goals and objectives, because State governments (which play many of the roles
that central government does in New Zealand) are active participants. For example, the 2014 Plan for
Growing Sydney includes actions aimed at ensuring that suitable sites for schools, tertiary education
institutions and health providers are identified and planned for appropriately (New South Wales
Government, 2014, pp. 5455). Similar goals exist in Plan Melbourne, with specific tasks allocated to State
government agencies (State of Victoria, 2014, pp. 12325). Some of New Zealands spatial plans do have
objectives focused on education and health services. However, as central government is not involved in
setting or agreeing to them, the goals are largely aspirational (eg, GCUDS, 2010, p. 268; Future Proof, 2009,
pp. 12627).
If the new planning avenue is to better deliver the full range of infrastructure needed for fast-growing urban
areas, a wider range of central government actors (such as the health, education and justice ministries)
should be involved in developing future spatial plans. Precedents exist of such joint long-term planning by
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local and central government agencies. For example, over 20062007, a joint local-central government
working group prepared shared advice on a strategy for developing Aucklands land transport system for the
next 2030 years. This advice was designed to inform funding decisions by both layers of government
(Auckland Transport Strategic Alignment Project Steering Group, 2007).
Given the potential fiscal implications of greater central government involvement in spatial planning
(discussed below), future spatial plans would most likely require joint approval of the Cabinet and relevant
local authority.
F3.17
The timely and adequate provision of social services (such as education and health)
matters for the growth of cities. Central government is responsible for planning for and
funding these services. However, it has played a limited role in developing
New Zealands current spatial plans.
R3.7
Future plans prepared under the new legislative avenue should be developed in
partnership with the full set of central government actors whose services matter for the
functioning of cities. Given the fiscal implications of greater central government
involvement in spatial planning, both Cabinet and the relevant local authority should
approve such plans.
Greater central government involvement in spatial planning will have implications for the governments
financial planning. Cities require long-term planning horizons, as is reflected in the 10-year timeframes of
LTPs and the recently introduced requirement for local authorities to prepare 30-year infrastructure
strategies. However, the governments budget cycles work on shorter timeframes. For example, the
Government Policy Statement on Land Transport Funding (which sets the transport activities to be funded
and the maximum and minimum amounts of funding available for each activity) must be renewed every three
years.
Uncertainty around future funding allocations from central government can have large financial impacts on
the budgets of local authorities and the provision of infrastructure. Auckland Councils 2012-22 Long-Term
Plan forecasts expected NZTA subsidies over the 10 years and notes that
[a] 1% change in this subsidy would equate to $26 million in capital subsidies, and $22 million in
operating subsidies. If the level of subsidy decreases transport infrastructure projects may be
reprioritised, or the scope reduced. Alternatively they may be funded through a different source such as
increased borrowing or rates. (Auckland Council, 2012b, Vol. 3, p. 90)
Two possible options to manage the tension between the two planning timeframes are noted below.
The development of detailed 10-year infrastructure strategies for the education and health sectors would
allow central government to signal to local authorities and developers where and when to contract for or
construct new facilities. The government has already begun to move in this direction by developing a 10year Capital Intentions Plan to match the planning frameworks required of local government (National
Infrastructure Unit, 2011, p. 19).
Separate, negotiated 10-year funding packages for city transport plans. The Crown could fund these
packages and recoup the funding from later National Land Transport Fund receipts or from Budget
operating allowances. Recent improvements to Aucklands transport network have been funded both
from the NLTF and from Crown grants and loans.
F3.18
One significant challenge in moving to an integrated planning avenue for larger urban
centres is reconciling a citys longer-term development and infrastructure needs with
much shorter central government planning and fiscal cycles.
Q3.2
How could the longer-term development and infrastructure needs of cities better align
with central governments fiscal cycle?
Q3.3
Are there other functions and activities that should be included in a new legislative
planning avenue for cities?
Processes to promote good regulatory analysis and design

Finally, any new legislative avenue would need to retain processes to encourage robust regulatory analysis,
similar to section 32 in the current RMA. As discussed above, consultation with the community on strategic
directions is a necessary, but not sufficient, condition for developing efficient and effective land-use
regulation.
R3.8
The new legislative planning avenue should include processes to encourage robust
regulatory analysis and development, as section 32 of the Resource Management Act is
designed to do.
As joint partners in future spatial plans, central government could bring its regulatory expertise and
capability to bear on their development, especially on proposed land-use regulations. Options include:
peer review by the Treasurys Regulatory Impact Analysis unit; or
the establishment of an Independent Hearings Panel to assess proposals and provide recommendations
(such panels have been used for the Proposed Auckland Unitary Plan and Christchurch Replacement
District Plan).
Sufficiently robust processes could permit the removal or restriction of merits appeals on the final spatial
plans (the issue of appeals on RMA plans is considered further in Chapter 4).
3.6
F3.19
Central government could bring its regulatory expertise and capability to bear so as to
properly test proposals for new land-use rules and regulations in future spatial plans.
Possible options include peer review by the Treasury or the establishment of an
Independent Hearings Panel.
Q3.4
What processes or mechanisms should be used to ensure that proposals for new landuse regulation in future spatial plan are subject to rigorous and independent scrutiny?
Conclusion
Integrating decisions around land use, infrastructure provision and transport is one of the biggest challenges
facing urban planning systems. In New Zealand, local authorities have attempted to overcome gaps in the
legislative planning frameworks by developing spatial plans. These plans lay out the expected pattern of
growth in a city or region over the future, and plan for the associated release of land and provision of
infrastructure. Spatial plans have a range of potential benefits, but they are likely to be most effective where
they are tightly-targeted and recognise the economics of development. Current legislative provisions make
it difficult to quickly translate the spatial plans into RMA regulatory plans. Resolving this issue is likely to
require a new legislative avenue for larger and faster-growing cities.
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Supplying and releasing land
Key points
Many New Zealand urban local authorities have goals for the supply of land to meet future
residential growth, although the form and strength of these supply goals varies between councils.
Only Auckland Council and the western Bay of Plentys SmartGrowth partnership have quantified
land supply targets.
The readiness of land matters for the efficiency of the housing supply chain. Land that is both zoned
and serviced with infrastructure will put the most competitive pressure on land and house prices, as
it is more readily available for home construction. Auckland and Hamilton City have supply targets
explicitly based on zoned and serviced land.
Greater monitoring of dwelling completions and net changes in the dwelling stock would better
enable local authorities to assess whether housing shortfalls were building up, and could help
trigger reviews of planning controls.
Covenants restrict the capacity of land to carry dwellings when new subdivisions are created.
Covenants impose more restrictive land use rules than are provided for in District Plans, and they
prevent neighbourhoods continuing to develop more dwelling capacity as they age. Subdivision
covenants are increasingly common, and include ever more detailed restrictions on land use.
Central government and local government own large amounts of land, although information about
the quantity and state of this land is patchy. Available information suggests that significant amounts
of public land may be bare, vacant or substantially unimproved, and suitable for residential
development.
The Government has recently announced a tender to use 430 hectares of Crown land in Auckland
for housing, and has taken early steps to use public land in Christchurch to increase the supply of
affordable housing. Scope might exist to use public land holdings in other high-growth cities to
help offset the nationwide shortfall of lower-priced housing.
A plan change is the mechanism used to rezone land for different uses. Councils in high-growth
cities take longer on average to make plan changes operative than other local authorities.
Consultation obligations and appeals contribute to these longer timeframes.
Local authorities should be given more flexibility to only notify directly affected parties of rezoning
proposals that are specific to a particular site.
Leading practices include engagement with affected parties on proposed plan changes ahead of
their notification, and circulation of draft plan changes for comment. This may help reduce the
incidence of appeals.
Reforms to appeal provisions require careful trade-offs between the goals of speeding up rezoning
processes and ensuring that they deliver quality outcomes. The Commission is interested in
receiving evidence on whether greater use of independent commissioners in planning decisions
would provide the level of rigour required to justify further restrictions on appeals.
4.1
Introduction
The Commission found in its Housing affordability inquiry report that an adequate supply of land (including
greenfield, brownfield and provision for greater density) matters for housing affordability
(NZPC, 2012, p. 113). Mechanisms to ensure that cities have a sufficient supply of land available to meet
Chapter 4 | Supplying and releasing land
expected population growth, and encourage the prompt use of that land, also feature prominently in
planning and development policy overseas.
This chapter identifies some key strategies for, and barriers to, the adequate supply of land and
development capacity, and considers how these are used in New Zealand. In particular, it looks at:
supply targets;
covenants;
releasing and using public land for housing; and
processes for rezoning land for residential use.
4.2
Supply targets
Planning systems in a number of jurisdictions include incentives or obligations on local authorities to make
provision for sufficient supplies of land or development capacity to meet future needs. These incentives or
obligations often take the form of supply targets or goals, which local authorities must seek to achieve
through their planning decisions. Such targets can serve a range of purposes, but are generally intended to
avoid shortfalls in land or development capacity emerging and putting upwards pressure on land and house
prices.
The goals are frequently set to meet a certain quantum of forecast future population growth, and often
target large amounts of supply (eg, 1530 years) to provide a buffer against unforeseen growth and to reflect
the time required to rezone and prepare land for residential uses. In England, revisions to the National
Planning Policy Framework require local authorities to
identify and update annually a supply of specific deliverable sites sufficient to provide five years
worth of housing against their housing requirements with an additional buffer of 5% (moved
forward from later in the plan period) to ensure choice and competition in the market for land.
Where there has been a record of persistent under delivery of housing, local planning authorities
should increase the buffer to 20% (moved forward from later in the plan period) to provide a
realistic prospect of achieving the planned supply and to ensure choice and competition in the
market for land
identify a supply of specific, developable sites for broad locations for growth, for years 6-10 and,
where possible, for years 11-15 (DCLG, 2012, p. 11). 25
A number of Australian state governments set land supply targets for their major cities:
The 30 Year Plan for Greater Adelaide includes a policy to provide sufficient other new growth areas for
a 25-year rolling supply of land, of which 15 years is zoned for urban development (DPLG, 2010, p. 82).
The Western Australian governments strategic plan for the metropolitan Perth and Peel region
(Directions 2031) introduced an urban expansion management program to ensure an adequate supply
of land that is suitable for urban development to meet medium to long-term residential needs. This
programme seeks to achieve an ongoing 25-year supply of undeveloped land composed of a minimum
15-year land bank of urban and urban deferred zoned land; and, a 10-year buffer of rural land identified
for future urban expansion or investigation (WAPC, 2010, p. 5).
In 2013, the government released a package of proposed reforms to the Resource Management Act 1991
(RMA), which included amending the Act to require councils to ensure there is adequate land supply to
provide for at least 10 years of projected growth in demand for residential land in their plans (MfE, 2013b,
p. 44).
To qualify as deliverable land, sites should be available now, offer a suitable location for development now, and be achievable with a realistic prospect
that housing will be delivered on the site within five years and in particular that development of the site is viable (DCLG, 2012, p. 11). To be considered
developable land, sites should be in a suitable location for housing development and there should be a reasonable prospect that the site is available and
could be viably developed at the point envisaged (ibid).
25
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What provision do New Zealand local authorities make for future supply?
A number of local authorities have taken steps to monitor land use and set goals of ensuring adequate
forward land supplies. However, the form and strength of the supply goal varies between councils. The
current Proposed Auckland Unitary Plan (PAUP) includes the following objective:
Maintain sufficient unconstrained residential and business land within the RUB [Rural Urban Boundary] to
accommodate an average of seven years land supply at any one time. (Auckland Council, 2013c)
This policy reflects the Auckland Plan priority of increasing housing supply to meet demand, which includes
the following objective:
The Auckland Council will ensure there is sufficient development capacity or ready to go land for
housing. This Plan provides for a staged release of land within the Rural Urban Boundary, with an
average of 7 years unconstrained development capacity at any point in time, with a minimum of 5 years
and a maximum of 10 years capacity. Unconstrained development is land that has operative zoning and
is serviced with bulk infrastructure. (Auckland Council, 2012a, para 610)
Five authorities had less tightly defined policies in their RMA plans (Table 4.1)
Table 4.1
Land supply objectives/policies in selected RMA plans
RMA Plan
Policy/objective
Hamilton City Operative

District Plan
Establish the supply of appropriately zoned and serviced urban land within the city
to meet the current and future demands of the citys population. (4.1.2, policy a)

Plan
Provision for residential growth sufficient to meet the Districts needs. (4.9.3,
objective 3)
Selwyn District Plan
Ensure that sufficient land is made available in the District Plan to accommodate
additional households in the Selwyn District portion of the Greater Christchurch area
between 2013 and 2028 through both greenfield growth areas and consolidation
within existing townships. (objective B4.3.5)
Whangarei District Plan
To zone land within urban areas in a manner that meets anticipated future urban
growth demands, taking into account: Landscape values; Ecological values; Amenity
values; Natural character of the coastal environment, wetlands and lakes, and rivers
and their margins; Archaeological and heritage features; Sites of significance to
Mori, and other taonga; Infrastructure, and high voltage transmission lines;
Productive land fragmentation; Water and soil quality; Cross-boundary conflicts;
Identified Mineral Extraction Areas. (policy 6.4.1)
Canterbury Regional Policy

Statement
The urban form and settlement pattern in Greater Christchurch is managed to

provide sufficient land for rebuilding and recovery needs and set a foundation for
future growth. This will be achieved by encouraging greater intensification within
the city and providing for the development of greenfield priority areas on the
periphery of Christchurchs urban area, and surrounding towns at a rate and in
locations that meet anticipated demand and enables the efficient provision and use
of network infrastructure. (objective 6.2.2) 26
Source:
Hamilton City Council, 2012; QLDC, 2012a; Selwyn District Council, 2008; Whangarei District Council, 2007; Environment
Canterbury, 2013.
Some of the remaining territorial authorities have considered the adequacy of land supplies in their planning
through non-regulatory means. As part of preparing the Wellington Urban Growth Plan, Wellington City
Council carried out assessments of land supply and housing demand, which found that in
greenfield areas a forward supply of land in excess of 20 years exists
the central city a supply of development capacity in excess of 20 years exists
The Environment Canterbury and Selwyn District Council objectives were inserted into the RMA plans by the Minister for Canterbury Earthquake
Recovery, using powers under the Canterbury Earthquake Recovery Act.
26
established suburbs we estimate in the order of 10 years forward supply exists for infill
development. (Wellington City Council / the Property Group, 2014, p. 12)
However, neither the Urban Growth Plan nor the Wellington District Plan has quantified supply targets.
The SmartGrowth partnership (made up of Tauranga City Council, Western Bay of Plenty District Council and
the Bay of Plenty Regional Council) has recently adopted the concept of a 10 year consentable land supply
as a working tool for the Settlement Pattern Review (sub. 27, p. 4). Waikato District Council noted that it had
rezoned, or was in the process of rezoning, land to meet expected demand from Aucklanders who may
want to take advantage of more affordable housing in the northern Waikato district:
The Pokeno Structure Plan was made operative in 2010 and provides for an additional 2000 houses in
Pokeno by 2030. The Tuakau Structure Plan is expected to be adopted by Council by the end of 2014
and provides for an additional 224ha of residential zoned land for staged housing development to cater
for an additional 5000 people by 2045. Land to cater for an additional 2000 people will also be deferred
zoned and can be released for development ahead of 2045 should the need arise. (Waikato District
Council, sub. 12, pp. 34)
F4.1
Many urban local authorities have goals for the supply of land to meet future residential
growth, although the form and strength of the supply goals vary between councils.
What matters for supply targets?

Like other forms of performance indicators, land supply targets are most likely to be effective where they:
involve quantified measures and regular reporting; and
target inputs or outputs of the highest importance to the desired outcome (in this case, the production
of housing).
Quantification and reporting

Only Auckland Council and the SmartGrowth partnership had quantified land supply targets. The absence of
quantified measures for the other local authorities makes it harder for external parties to assess their
performance. Similarly, very few local authorities reported regularly on their land supply performance. The
only detailed reporting the Commission was able to identify was from the SmartGrowth partnership, which
provided detailed information on the uptake of different types of land relative to projections, and available
remaining supplies (SmartGrowth, 2013b).
F4.2
Only Auckland Council and the SmartGrowth partnership have quantified land supply
targets.
F4.3
Local authorities provide only limited public reporting on their performance against
their land supply targets.
Targeting the right inputs or outputs

The local authorities also vary in terms of the types of supply sought. For example, Auckland Council and
Hamilton City Council seek zoned and serviced land, while Whangarei City Council and the SmartGrowth
partnership have goals for zoned land. The readiness of land matters for the speed of the supply chain for
delivering housing (Figure 4.1).
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Figure 4.1
Impact of different levels of land readiness on the housing supply chain
Raw land
Low impact
Zoned land
Zoned and
serviced land
Zoned,
serviced and
consented
land
High impact
Providing large amounts of land that is raw or un-zoned may provide little competitive pressure on prices,
because of the time it can take to rezone land for residential purposes. Tauranga City Council observed that
in their experience
it takes between 4 and 10 years to rezone land under the Schedule 1 process in the RMA taking account
of the preparatory work required before a Plan Change proposal is notified for submissions through to
appeal outcomes and making operative. (sub. 47, p. 4)
Zoned land is likely to provide more pressure, but this will depend in large part on whether the zoned land is
in areas where there is (or is likely to be) demand. This point was discussed in the Selwyn District Plan:
Under previous legislation Councils had an explicit role to direct and control the growth of the
townships. Common practice was to predict the amount of land likely to be needed for new residential
or business growth for the next 10 to 18 years and to zone land to meet that demand. This approach
had both advantages and disadvantages. The main advantage was the certainty it provided for the
community and for agencies supplying utilities, facilities and services. The main disadvantages were:
The areas zoned were not always areas people wanted to live in, which created surpluses and
shortages of appropriately zoned land in different places.
Those landowners who had land zoned were given considerable economic advantage over those
landowners who did not. Often there was little difference in the suitability of the sites. (Selwyn
District Council, 2008, B4, p. 29)
In addition, as was discussed in Chapter 3, land that is zoned may not actually be economically viable for
development. Analysis conducted for the Property Council concluded that only 25% of the theoretical
capacity for new dwellings provided by the provisions of the PAUP and Special Housing Areas would
actually be viable (Urban Economics, 2014). Evidence provided on behalf of the Property Council to the
Independent Hearings Panel (IHP) noted that determining
whether capacity exists is a complex task and requires the consideration of many factors[including]
property size; property dimensions; property contour; location of existing buildings; natural features
(trees, waterways); access to rear lots; planning rules/zones; market demand for proposed dwelling type
by locality; land value; capital improvement value; access to wastewater, sewerage, water; utility
connections (phone, internet); infrastructure capacity; demolition / relocation costs; ground clearance;
earthworks; constructions costs; professional fees; council fees and contributions; finance and holding
costs; real estate agent fees; rates; insurance; legal costs; profit; taxes. For the development of an
individual site to be commercially feasible all of these factors must be considered. The overall capacity
for a city is therefore the sum of all the properties that have commercial feasibility. (Annex 5 to sub. 33,
pp. 89)
By comparison, land that is zoned and serviced can be developed more quickly, and so is likely to provide
more competitive pressure. In this respect, the Auckland Council and Hamilton City Council targets are
closest to leading practice. However, as is discussed in Chapter 7, considerations about the supply of
infrastructure need to be factored into decisions about the supply of zoned and serviced land.
F4.4
The readiness of land is important for the efficiency of the housing supply chain. Large
amounts of un-zoned land may put little competitive pressure on land and house prices,
because of the time it takes to rezone land for residential use. Zoned and serviced land
will provide more pressure, as this types of land can be developed more quickly.
R4.1
High-growth local authorities should express their land supply targets in terms of zoned
and serviced land and report publicly on their performance.
The need for a wider set of measures

Land supply targets even those based on zoned and serviced land are a necessary but insufficient
condition for the adequate production of housing. A range of other factors such as access to finance,
construction costs, demand levels, and the restrictiveness of zoning and District Plan provisions may limit
the supply of dwellings. NZTA in its submission commented that
because land has been zoned or has infrastructure provided does not mean that it will be quickly
supplied to the market. There is also anecdotal evidence which would suggest there are failures with the
market which prevent housing coming to the market as follows:
land banking is an issue where developers may drip-feed zoned land on to the market to maximise
the value of new sections
some Special Housing Areas (SHAs), once gazetted, are being on-sold based on the value add of
being an SHA.
relationships between multiple landowners may mean that development is held up by disputes on
financing, sequencing of development or infrastructure provision. (sub. 73, p. 7)
Clearly, many of these other factors are outside the direct control of councils. However, the insufficiency of
land supply targets on their own as a means of preventing housing deficits from building up suggests that
other targets or monitoring systems are needed.
One approach commonly taken by councils is to monitor the performance of their planning and consenting
units, in terms of their ability to quickly process resource consent applications. These indicators typically
focus on timeliness and customer satisfaction. Such indicators are useful for measuring efficiency and
highlighting internal performance issues, and should be retained. However, these indicators are likely to
have limited impact on the supply of housing. Gurran et al. (2012), in their review of the performance of
Australian, English, New Zealand and US planning systems, conclude that
narrow system efficiency indicators (which focus on, for instance, decision speed and rates of approval),
and which are often used as a proxy for planning stance, are generally not reliable predictors of housing
market outcomes. (p. 6)
As a result, Gurran et al. argue for more systematic approaches to data collection and review, which at
minimumshould address dwelling completions (as distinct from land release or dwelling approvals)
(p. 66). This would include net dwelling additions, and the proportion of new homes affordable to different
income groups.
Regular monitoring of dwelling completions and net changes in the dwelling stock would better enable local
authorities to assess whether housing shortfalls were building up, and whether the type of supply was
meeting current or expected demand (relative to population and household growth). It could also act as a
trigger for councils to review the suitability of their planning controls, perhaps using tools such as the Urban
Feasibility Model described in Chapter 3.
Some New Zealand local authorities already target or monitor the production of dwellings:
Auckland Council has estimated the existing housing shortfall and set a target in the Auckland Plan to
[s]upply 100,000 new dwellings in the period 2012-22, 170,000 new dwellings in the period 2022-32, and
130,000 new dwellings in the period 2032-42 (Strategic Direction 10). It reports yearly on dwelling
consent numbers.
Tauranga City Council reports yearly on the growth in new dwellings compared to what was expected
according to the most recent SmartGrowth growth projections, and the SmartGrowth partnership
reports yearly on development trends in the Western Bay of Plenty region including dwelling consents,
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code of compliance certificates, average section size, resource consents and performance comparisons
with growth projections (Tauranga City Council, 2014a, p. 133; SmartGrowth, 2013b).
R4.2
Local authorities should monitor and report on dwelling completions and net changes in
the dwelling stock, relative to expected and actual population and household growth.
Greater monitoring of dwelling production will require better and more regular data. Housing represents
one of the largest asset classes in New Zealand, yet in comparison with other sectors (eg, capital markets,
manufacturing) comparatively poor information exists, or analysis of it undertaken. For example, currently no
regular detailed measurement of completed dwellings exists. Any available information (taken from building
consents) is either infrequent or of questionable quality, as Statistics New Zealand found in 2009:
While the census provides a five-yearly stock-take of occupied and unoccupied dwellings, reliable flow
information is also needed, which requires information on housing additions and demolitions. Existing
information on housing demolitions is of poor quality, which affects the robustness of data on changes
to the housing stock.
Currently flow information is provided by building consentsHowever, a major issue is that there is no
standardisation of the building consent forms and each territorial authority devises its own. This makes it
difficult to extract the information required to produce official statistics. In addition, the forms are often
poorly completed, requiring a lot of grooming, or they are late and need to be chased up.
If the number of approved dwellings is to be used to estimate changes to the stock of dwellings
available, it should be adjusted for demolitions and conversions. (Statistics New Zealand, 2009, p. 22)
A 2011 progress report on housing statistics noted that little progress had been made on improving building
consent data (Statistics New Zealand, 2011), and inquiries with the Ministry of Business, Innovation and
Employment (MBIE) suggest that this work has not yet been completed. Without progress on this indicator,
local authorities and central government are likely to struggle to accurately assess the state of high-growth
housing markets.
F4.5
A need exists for better and more regular data on dwelling production, especially
housing additions and demolitions. Existing information provided through building
consents is of poor quality.
R4.3
The Ministry of Business, Innovation and Employment, Statistics New Zealand and
territorial local authorities should work together to improve the quality of official
statistics available from the building consent form as a priority.
Public access to information about housing and the housing market is potentially also constrained by current
business arrangements between local authorities and the state-owned enterprise Quotable Value (QV).
Information on property is sold by local authorities to QV, which then aggregates the data and sells raw or
processed information to individuals or firms. Most local authorities also contract QV to assess property
valuations for rating purposes in their areas and to maintain District Valuation Rolls (DVRs).
These DVRs contain a range of information, including assessed values, the age and size of buildings, land
and floor area, and the assessed highest and best use of the land. The information in a DVR is of
considerable general use to researchers, government departments, and the wider economy. In the course of
this inquiry, the Commission was assisted by access to the DVRs of two large cities. The Office of the ValuerGeneral receives DVRs from local councils for the purposes of audit, but does not keep them or maintain a
national roll (although it has been required to in the past).
Although the prices charged by QV for access to individual data items (eg, information on a particular
property) are not high, some commentators have argued that the prices for larger datasets required for
detailed analysis can be prohibitive (Schiff, 2015). The lack of ready public access to property information,
which is largely sourced from local authorities, seems to sit uneasily with the spirit of the Official Information
Act, Local Government Official Information and Meetings Act and the Governments publicly stated
commitment to actively release high-value public data to
enable the private and community sectors to use it to grow the economy, strengthen our social and
cultural fabric, and sustain our environment. We release it to encourage business and community
involvement in government decision-making. (New Zealand Government, 2011)
Q4.1
4.3
Should the public have improved access to property data such as the content of District
Valuation Rolls and property sales data?
Covenants
In 1938, New Zealands foremost expert in property law, E C Adams, wrote:

The doctrine of restrictive covenants appears alien to New Zealand conception of rights in property. Any
contract tending to restrict the free transfer of land and the full use thereof is distinctly against public
opinion in these newly-settled countries. (quoted in Mulholland, 2005, p. 275)
This has changed. Restrictive covenants in new subdivisions (also commonly referred to as building schemes)
are now a very common feature of property development in New Zealand. The mayor of one fast-growing
New Zealand city told the Commission that all subdivisions in their area were subject to detailed covenants.
The intention behind subdivision covenants is that, through placing binding restrictions on how the land can
be used, prospective purchasers can receive assurance as to the quality of the development and therefore
support for the value of their purchase. Typically, such covenants will prevent the erection of more than one
dwelling on each lot and prevent further subdivision of the land. Any landowner can enforce the provisions
of the covenant against another landowner, and covenants typically continue in perpetuity (mechanisms for
extinguishing them are discussed below).
The Commission was told that covenants are increasingly binding landowners about more detailed matters,
such as requiring minimum floor areas or minimum costs of a dwelling, banning off-site construction,
controlling detailed landscaping decisions, or purporting to prevent certain vehicles being parked on the
property or even on the adjoining road (Box 4.1).
Box 4.1
Examples of subdivision covenants
The covenants at Karaka Harbourside Estate in south Auckland are good examples of the restrictions in
many new subdivisions.
No further subdivision is permitted.
The developer must approve in writing the dwelling and landscaping plan, including the design
and location of fencing, paths, driveways, plantings, and external amenities.
The dwelling must have a floor area of not less than 180m. The dwelling must not be rectangular or
square, and the roof must have at least three planes (unless it is a flat roof).
The types of construction materials that can be used are restricted. Fibrolite, hardiflex, hardiplank
or similar products are prohibited. Flat plywood wall-cladding is prohibited unless it is coated
externally with a plaster or rendered finish. Second-hand material is prohibited apart from
decorative stone or timber.
Fences may not be more than 1.8m tall or built of corrugated iron, cement fibreboard, fibrolite,
hardiflex, hardiplank or similar flat sheet products (unless coated externally). No fence can be
erected on the front of property, and no side fence is permitted any further forward than the front
of the dwelling. Fences adjoining a reserve may not be more than 1.2m tall, and must be
translucent.
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The sizes of antennae and satellite dishes are restricted. They must not be visible from the road; nor
must the washing line or any heating or air conditioning equipment.
Garages must be attached to the dwelling. No other structures, including caravans, huts and
carports, are permitted, with the exception of a small garden shed with a factory colour finish.
The front yard may have no fewer than two trees of at least 2.5m height. Grass must not exceed
150mm. Trees or vegetation may not grow higher than 5m.
The letterbox may not be more than 1200mm x 1200mm x 600mm and must be of the same
construction material as the exterior cladding of the dwelling.
The exterior of the dwelling must be completed within 6 months, and interior with 12 months of
commencement.
The owner may not permit any occupant to park any caravan, boat, trailer, truck, commercial vehicle
or van on the road. The owner may not park any vehicle of any type on the road at any time.
Advertising hoardings or signs are prohibited.
The developer can grant exemptions to non-compliant dwellings or landscaping at its sole
discretion. The developer can nominate another person or persons to exercise any approval
functions in the future.
The owner may not object to the developers future activities.
A penalty of $500 each day is payable for being in breach of the covenant.
The requirement to pre-approve the dwelling and landscaping plan expires at the end of 2016. All
other requirements, including permitted and prohibited construction materials and landscaping,
continue indefinitely.
The covenants for Karaka Harbourside Estate are fairly typical of the subdivision covenants that the
Commission reviewed, although each is different. For example:
Kaipara Meadows in Kaukapakapa, west Auckland, requires dwellings to have a minimum value of
$350 000 in 2012 dollars, prohibits overhead power and telecommunication lines, prohibits bright or
vibrant colours, and has a penalty of at least $20 000 for breaching the covenant.
Stonebrook in Selwyn prohibits multi-storey dwellings on most lots, prohibits certain dog breeds
and animals that are likely to annoy other owners, prohibits owners from using the land in any way
which in the reasonable opinion of the Developer detrimentally affects the amenities of the
neighbourhood including permitting noise to escape from the Land which is likely to cause offense
or a nuisance to occupiers of other land, and allows the developer to enter the land with 48 hours
notice to monitor compliance with the covenant.
The Lakes in Tauranga requires dwellings to be at least 100m (pre-built or transportable dwellings
require the developers written approval), requires owners to remove graffiti within five days, and
requires them to have no animals, reptiles, poultry or livestock on the property (except for a
maximum of three cats or dogs).
In Pegasus Town, owners must not oppose, object to, frustrate, or take any action, or encourage or
cause others to oppose, object to, frustrate or take any action that might in any way prevent or
hinder Pegasus Town from progressing. (Dally, 2013)
In Parklands, Napier, where the developer is the Napier City Council, the covenant appears no less
restrictive than usual. Only single-storey homes of at least 185m or 175m (depending on the lot)
are permitted, relocatable structures are prohibited, granny flats are prohibited, and a breach of
the covenant carries a penalty of 25% of the dwellings value.
Source:
Kaipara Meadows, n.d.; Karaka Harbourside Estate, n.d.; Parklands Residential Estate, 2015; Stonebrook, n.d.; The
Lakes Tauranga, n.d.
In its issue paper, the Commission asked whether private covenants were restricting the development
capacity of land for housing. The views of submitters were mixed.
Some submitters considered that covenants did unduly restrict the carrying capacity of land. Evan Keating
submitted that the goals of ensuring adequate supply of land for housing, including through the more
intensive use of land can be undermined by the use of such covenants and currently there is nothing that
local councils can do to alter them (sub. 35, p. 1).
Most objections to covenants however related to their exclusionary effects, or overly detailed nature:
Private covenants seem to provide an elevated social status for a subdivision. This reassures buyers that
their housing investment is assured a set of aesthetic standards and commands a higher land price due
to its exclusiveness. This causes affordability issues for lower income people. It is in effect social
discrimination by post code. (Ralph Broad, sub. 3, p. 3)
Covenants are very common for new greenfield housing developments and can help play a role in
ensuring the marketed subdivision concept is maintained during its build out. Covenants will however
often be unnecessarily restrictive (e.g. no relocations, on-site construction, minimum building platforms,
etc) and sometimes misused, becoming overly pedantic and dogmatic (front door colour, gardening
dress code, etc). Whilst recognising that developers have a desire to protect the value of their
development this blunt mechanism often stifles creativity, innovation, diversity and affordability. The
need for covenants for anything but the initial phase of a development is also questionable. (Greater
Christchurch Urban Development Strategy Partnership, sub. 18, pp. 910)
Perhaps unsurprisingly, developers did not consider that covenants were a problem:
Covenants have not impacted on the supply of land. Covenants are all about giving comfort to
purchasers that the amenity value in the development is going to be maintained. (Carrus, sub. 10, p. 6)
In TGHs [Tainui Group Holdings] experience, the use of covenants in new housing developments is
extremely common. In TGHs experience, the use of covenants does not impact on supply and has
limited impact on demand. (Tainui Group Holdings, sub. 53, p. 3)
Tauranga City Council pointed to some particular examples of covenants being used in a concerning way:
In one instance a developer has used covenants to prevent sections in its subdivision being used to
provide road access or services to adjoining land zoned for residential development. The site
has the capacity to deliver approximately 200-250 sections. TCC looked to applying to the Court to
change these covenants as well as to designate under the Public Works Act to deliver the
necessary infrastructure, however legal advice suggested there was significant risk in being able to
overcome the covenants and even if this was achieved significant financial compensation may be
payable to those that could claim they had relied on these covenants. The Commerce Commission
also advised that the covenant was unlikely to be in breach of section 28 of the Commerce Act
which prohibits covenants that substantially lessen competition. Ultimately TCC has been unable to
do anything about the situation.
In another instance another developer has withheld access to adjoining land capable of being
developed into about 250 houses enabled choosing not to complete a small stage of its
subdivision that would have the construction of road access and services to the adjoining property
boundary. This situation has existed for over five years. In recent months TCC has been putting
pressure on the developer to provide access. Reluctantly the developer has agreed to progress
discussions on this matter on the basis that the adjoining landowners pay a significant financial
premium to achieve access.
In yet another example land capable of accommodating over 100 new homes was left without road
access by a developer who bought up a number of land parcels but could not come to agreement
with a number of other landowners and designed its subdivision such that these other properties
could not be developed. TCC has fortuitously been able to progress this matter and we are
currently in discussions regarding the purchase of surplus Crown land that would allow access and
services to be provided to the land for development purposes. (sub. 47, pp. 2526)
F4.6
Covenants established in new subdivisions (building schemes) are increasingly common

and impose ever more detailed restrictions on purchasers.
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Benefits of covenants
Such covenants have a number of advantages. They can:
allow landowners to agree to be bound by restrictions that provide a higher level of amenity than is
provided for in planning regimes;
deal with matters that are not appropriate for District Plans; and
be enforced by adjoining landowners directly, rather than requiring action by a Council.
The prevalence of subdivision covenants is prima facie evidence that they are valued by landowners. A 1984
UK Law Commission report concluded that prohibiting the use of covenants would serve to curtail a
freedom which people do in fact exercise to a very considerable degree (quoted in UK Law Commission,
2008, p. 132).
Problems with covenants

Covenants, by their nature, restrict certain uses of land in the future. Mead and Ryan (2012) argued that, over
time, restrictive covenants can frustrate other legitimate public policy objectives:
But it may also be contrary to other public policy imperatives in some circumstances, such as where
significant up-zoning is planned or urban consolidation sought. Restrictive covenants may prevent such
up-zoning now, and in the future. If the basis for public planning instruments under RMA is to promote
the sustainable management of natural and physical resources including for future generations, why
should that object potentially be frustrated by privately-imposed restrictive covenants when public
planning instruments can override other property rights? (p. 1)
The Victorian Law Reform Commission has noted that

[t]he proliferation of covenants imposes high transaction costs on burdened owners who wish to
negotiate the release or variation of covenants. Where the number of benefited owners is large, the
chances of obtaining the formal consent of all are remote. (2011, p. 88)
As static requirements imposed on evolving communities, covenants have the potential to exclude new
uses and to lock in the values, lifestyle choices and aesthetic preferences of the original lot owners. This
limits the ability of owners to use land in a way that meets their needs. (2011, p. 90)
Covenants restrict the supply of land for housing in two main ways:
As subdivisions are established, they impose more restrictive planning rules than are provided for in
District Plans, restricting the capacity of the land to carry dwellings. So, for example, a covenant might
prohibit secondary units (granny flats) even though they may be allowed by council rules.
As these covenants and the subdivisions age, the covenants prevent the redevelopment of
neighbourhood (for example, through the construction of infill housing) that would otherwise occur.
They can also increase the cost of housing:
through direct requirements that dwellings are of a minimum cost or size (larger than required by council
rules); and
by prohibiting efficient building techniques, including the use of building materials that may be
developed in the future.
F4.7
Covenants established in building schemes can reduce the supply of land for housing
now and in the future, and increase the cost of constructing dwellings.
Mechanisms to extinguish covenants

Two main mechanisms exist for modifying or extinguishing covenants:
By agreement: Covenants can be modified or extinguished by the agreement of all landowners who
benefit from it.
By Court Order: Section 317 of the Property Law Act 2007 allows both the District Court and the High
Court to modify, or wholly or partially extinguish any easement or covenant upon being satisfied as to
one of a number of grounds (McMorland, 2014), including:
-
changes in the nature and extent of use of the land;
changes in the character of the neighbourhood;
any other change in circumstances since the covenant was made that the Court considers relevant;
if the covenant impedes the reasonable use of the land in a different way or to a different extent than
could have been reasonably foreseen when it was created; and
that every owner, by act or omission, is reasonably considered to have abandoned or waived the
covenant.
In large subdivisions, the prospect of getting every landowner to consent to significantly modify or
extinguish covenants is so remote that it can be dismissed.
The courts appear to have broad grounds to extinguish or modify them, and the power to order
compensation. However Mead and Ryan (2012) argue that the courts in practice will prioritise the private
considerations of landowners, rather than any public interest. The Commission has not been able to find
good information about how effective these mechanisms are in practice.
Approaches in Australia
In Australia restrictive covenants can be rendered void by local planning schemes in various ways:
In Western Australia, the Planning Commission will not approve subdivisions or endorse deposited
plans which propose restrictive covenants which limit the number of dwellings, restrict the maximum area
occupied by the dwelling, or the future subdivision of the lot in a way that is inconsistent with the
provisions of the relevant local planning scheme or applicable state planning policy (WAPC, 2008, p. 3).
In Queensland, covenants are not registered on the land title, and so only constrain the original owners.
The covenant does not carry with the land, and subsequent owners are not bound by the covenant. In
addition, covenants may not restrict the use of energy efficient or sustainable building features (such as
light roof colours, or orientation of the building towards the sun) and cannot require a minimum floor
area, or a minimum number of bedrooms or bathrooms) (Queensland Government, 2010).
In New South Wales, planning law allows councils to include provisions in local plans to the effect that a
covenant cannot fetter or restrain what council would otherwise approve as a lawful development
(Erlingtons, 2011).
In the Northern Territory, covenants have a maximum duration of 20 years (Victoria Law Reform
Commission, 2011, p. 91).
The Commission met with a number of Australian developers, who told the Commission that they commonly
established covenants that expired upon completion of the last dwelling in a subdivision. This practice
appears far more common in Australia than in New Zealand.
Summing up covenants
Covenants are a type of property right, but in some circumstances there is a public interest in restricting or
controlling these rights. Few large subdivisions are now created without building schemes enforced by
covenants, and many of the covenants that the Commission reviewed appear to be unduly prescriptive. They
have the effect of reducing the supply of land for housing now and in the future.
A number of options could be considered to control covenants:
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Place a time limit on subdivision covenants. This could be a strict limit, or it could require owners to
reconfirm that they wish the covenants to continue. In 2010 the Victoria Law Reform Commission
recommended a maximum duration for covenants of 20 years, although the government does not
appear to have accepted this. In England and Wales, the Law Commission recommended covenants
should expire after 80 years, but the government did not accept this. In Massachusetts in the
United States, burdens exist for 30 years and can be renewed every 20 years (Scottish Law Commission,
2000).
Restrict the subject matter of covenants, as in Queensland.
Provide for councils to void provisions of covenants that are inconsistent with local plan, as in
New South Wales.
Provide easier mechanisms to extinguish covenants. The Scottish Law Commission (2000) has
recommended processes that would make it easier to cancel covenants after 100 years, without the
consent of all other owners (although their interests need to be taken account of). Another alternative
would be to allow owners burdened by a subdivision covenant to extinguish it by majority vote, rather
than requiring unanimity.
Q4.2
4.4
What are the merits of statutory controls on subdivision covenants, such as time limits,
restrictions on the subject matter in them, providing councils with powers to override
them, or creating mechanisms to reduce the barriers to extinguishing them without
unanimous consent?
Prioritising the release and use of public sector land
Local and central governments are often owners of significant amounts of land. Governments can use some
of this land to increase the supply of housing, by developing it themselves or entering into partnerships with
the private sector.
Releasing and using public sector land has been a focus of housing strategies in a number of jurisdictions:
The Mayor of Londons recent housing strategy notes that:

It is estimated that 40 per cent of brownfield land suitable for development is in the ownership of the
public sector, including both central and local government. The Mayor is committed to accelerating the
disposal of surplus public sector landholdings to boost the development of homes, and the GLA
[Greater London Authority] has put in place a number of mechanisms to enable this. (Mayor of London,
2014, p. 77)
Similarly, New York City is planning to conduct a comprehensive survey of all vacant sites in the City,
with the intention of encouraging affordable housing and mixed-use development on underused sites
within our own portfolio, as well as in partnership with the State, public authorities, not-for-profit
institutions, faith-based organizations, and private owners who have land that could be deployed for
affordable housing (City of New York, 2014, p. 9).
Turkeys housing agency TOKI assembles land packages by acquiring it from other government
agencies, and enters into partnerships with private sector developers. Private developers build housing
for the wider market and split the revenue earned with TOKI, which uses the funds to acquire more land
and build affordable houses. Between 2003 and 2013, this strategy released more than 160 km of public
land, leading to the development of more than 500 000 units (McKinsey Global Institute, 2014, p. 55).
In 2010, Australian state and federal governments undertook an audit of surplus government land, which
identified 1,150 hectares suitable for housing and community development over the subsequent one to
three years (Housing Supply and Affordability Reform Working Party, 2012, p. 23). The Australian federal
Department of Finance currently maintains a register on its website of surplus Commonwealth land
potentially suitable for housing and community outcomes. Making surplus land available for housing is
also part of the New South Wales Governments Plan for growing Sydney (New South Wales
Government, 2014, p. 67).
A recent New Zealand example of the re-use of public land for housing is the Hobsonville Point
development (Box 4.2).
Box 4.2
Hobsonville Point
Hobsonville Point, on the northwest side of Aucklands Waitemata Harbour, was an active air force base
from 1929. After the air force relocated its operations to the nearby Whenuapai base, the Housing
New Zealand Corporation (HNZC) purchased 167 hectares at Hobsonville for residential development.
HNZC established a subsidiary organisation, the Hobsonville Land Company, to manage the
development, which is being run as a collaborative partnership with the private sector. The Hobsonville
Point development is a master-planned community that will ultimately provide around 3 000 dwellings
(a mix of standalone and terrace houses and apartments), along with community facilities such as
schools, parks and public transport.
How much public land is available for housing?

Information about public land holdings across New Zealand cities, and its readiness for residential use, is not
readily available. A survey of total public land holdings in Auckland conducted for MBIE found that central
and local government agencies hold over 43 000 parcels of land in Auckland, totalling 70,571 hectares (Table
4.2).
Table 4.2
Publicly owned land in Auckland
Organisation/entity
Number of land parcels
Sum of area (hectares)
Central government
Housing New Zealand Corporation
21 265
1 557.81
Reserves and other gazetted land
5 845
12 546.46
Her Majesty the Queen
3 519
24 393.87
Schools
1 253
922.05
288
651.34
District Health Boards
64
70.68
Tertiary education institutions
51
152.15
10 737
27 197.27
Watercare Services
329
2 901.56
Auckland Waterfront Development
168
34.00
Ports of Auckland
113
133.43
46
9.96
43 678
70 570.58
State-owned enterprises and Crown

agencies
Local government
Auckland Council
Auckland Transport
TOTAL
Source: MBIE, personal communication.
Note:
1. Her Majesty the Queen includes land held in the conservation estate, prisons and some education land.
101
102
Data from the Office of the Valuer-General suggest that large amounts of publicly owned land in Auckland
and some land in Wellington is bare, vacant or substantially unimproved and suitable for residential
development. (Table 4.3 & Table 4.4). Similarly, Auckland Councils property arm (Auckland Council Property
Limited) has identified that in sites on its booksapproximately 2,500 houses can realistically be built over
a period of years by development partners (ACPL, 2014, p. 4).
Table 4.3
Publicly owned bare land in Auckland and Wellington (RB classification)

Auckland
Total land area
(hectares)
Wellington
Total land value
Total land area

(hectares)
Total land value
Core Crown
50.42
$103.0m
3.36
$1.0m
Local authority
51.89
$58.5m
21.38
$3.1m
Non-core Crown
55.05
$86.8m
157.36
$248.3m
Total
Table 4.4
0
24.74
$4.1m
Publicly-owned vacant land in Auckland and Wellington (RV classification)

Auckland
Total land area
(hectares)
Wellington
Total land value
Total land area

(hectares)
Total land value
Core Crown
20.79
$113.0m
1.76
$8.95m
Local authority
33.12
$105.0m
11.33
$14.70m
9.22
$35.9m
0.16
$0.86m
63.13
$253.9m
13.25
$24.51m
Non-core Crown
Total
Source
Productivity Commission analysis of Valuer-General data.
Note:
1. Land value for Auckland is from 2014. Land value for Wellington is from 2012. Core Crown includes government departments,
non-core Crown includes Crown entities and state-owned enterprises. RB is defined by Land Information New Zealand as
residential land that is bare or substantially unimprovedwhich is likely to be subdivided into dwelling house sites. RV is defined
as vacant or substantially unimproved land on which it is likely a single dwelling house will be built (Land Information New
Zealand, 2010, p. 64).
Under the Housing Accord signed between the Government and Christchurch City Council, both parties
agreed to identify surplus Crown and Council owned land that may be appropriate for residential
development (CCC / New Zealand Government, 2014, p. 5).
Beyond Auckland and Christchurch, as far as the Commission could determine, neither central nor local
government appear to have assessed public land holdings suitable for residential development. What
information is publicly available on government-owned land designated for disposal provides little guidance
on its size, zoning or servicing. MBIE, in conjunction with relevant local authorities, should inventory public
land holdings in all high-growth cities to clearly identify surplus sites that could be used for housing.
Any assessment of surplus land would have to take into account the need to hold land for Treaty of
Waitangi settlements, any obligations established by existing settlements to offer a right of first refusal, and
any obligations under the Public Works Act to first offer land back to the original owners before it can be
sold on the open market. The public sector currently has processes to meet these obligations, such as the
Office of Treaty Settlements Land and Property Protection Mechanism, and internal departmental systems
for the disposal of land. The government has also established a Crown land centre of expertise within Land
Information New Zealand to assist agencies with land disposal projects.
F4.8
With the exception of Auckland and Christchurch, there does not seem to have been a
stocktake of public land holdings in high-growth cities to identify land that could be
released for residential development.
R4.4
The Ministry of Business, Innovation and Employment, in conjunction with relevant local
authorities, should inventory public land holdings in all high-growth cities to identify
sites that could be used for housing.
The Government has recently sought tenders for the development of housing on 430 hectares of Crown land
in Auckland. This is a positive step, and should help meet some of the citys housing shortfall, especially if
building can take place at higher densities than in the past. Opportunities may exist to use public land
holdings in other cities to help fill the nationwide shortfall of new, lower-priced housing. Some early steps in
this direction have also taken place in Christchurch (Chapter 10).
The process of contracting the development of surplus public land for housing could be managed centrally,
through a dedicated unit within a public service department such as MBIE or the Treasury, or through joint
ventures between local and central government. A variant would be to vest surplus public land in urban
development authorities. The role of urban development authorities is discussed in Chapter 10.
F4.9
4.5
Opportunities may exist to use Crown and local authority land holdings in other cities to
Rezoning
The ability to promptly rezone land plays an important part in increasing land supplies, by bringing new land
to market (by converting rural land to urban use) and increasing the development capacity of existing urban
land (eg, by increasing height limits or reducing minimum lot sizes). This section discusses how rezoning
occurs in New Zealand, looks at the factors that affect the speed with which rezoning can take place, and
explores options for reform. The key challenge for reform options is to strike the right balance between the
goals of speeding up planning processes and ensuring that the regulatory processes provide quality
outcomes.
How rezoning occurs in New Zealand

Rezoning in New Zealand is carried out through changes to RMA plans. Existing RMA plans can be changed
either at the instigation of local authorities, or at the request of private individuals and organisations. 27 Local
authorities wishing to develop new RMA plans, or make changes to existing plans, must follow the
consultation requirements laid down in Schedule 1 of the RMA (Figure 4.2).
27
Changes can also be made to proposed RMA plans. These are known as plan variations. This chapter does not deal with plan variations.
103
104
Figure 4.2
Stylised presentation of Schedule 1 process for preparing a new Plan or Plan change
Preparation of draft plan or policy statement
The plan or policy statement becomes operative
Consultation with Ministers, tangata whenua,

other councils and the public
Public notification of the proposed plan or

policy statement, giving the public at least 40
working days (or 20 working days for plan
changes / variations) to make a submission
Environment
Court decision
imposed on all
parties
Agreement by all
parties and
accepted by the
Environment Court
(consent order)
Mediation /
negotiation
(optional)
Hearing
Submissions received and a summary of

submissions publicly notified
Further submissions (within 20 working days)
Original submitters and people with an interest

greater than the public generally are able to join
any appeal within 30 days of it being lodged
Council hearing (10 days notice given to

submitters who have opted to present orally)
Council decisions
Appeal challenging the Councils decision on an

issue that the appellant submitted upon originally,
filed with the Environment Court and sent to the
council within 30 working days of the decision
Source:
Adapted from Royal Forest and Bird Protection Society of New Zealand, 2005.
Note:
The darker sections are the focus of the following discussions.
Plan changes requested by private individuals and groups must follow process requirements set down in
Part 2 of the RMAs Schedule 1. In brief, local authorities must make a decision on any request for a private
Plan change. Councils may accept the request in whole or in part and work with the applicant to prepare a
Plan change, adopt the request themselves, or reject the request in whole or in part. Where the request is
accepted or adopted, the proposal is then publicly notified and submissions are sought, as shown in Figure
4.2.
Local authorities may only reject a request for a Plan change, where:
the proposal is frivolous or vexatious;
the issue had been considered and rejected in the past two years;
the substance of the change had already been given effect to;
the requested change would make the plan incompatible with higher-level plans (eg, Regional Policy
Statements);
the requested change would be incompatible with sustainable management; or
the Plan had been operative for less than 2 years.
Private Plan changes can be requested for District and Regional Plans, but not for Regional Policy
Statements or national RMA instruments (eg, National Policy Statements or National Environment
Standards).
Access to appeals exists for local authority-led and private plan changes:
Submitters on a proposed plan or change may appeal a local authoritys decision to the Environment
Court, if the matter in question was raised in their submission and the appeal does not seek the
withdrawal of the plan or policy statement as a whole (Schedule 1, section 14).
A person who seeks a private plan change may appeal to the Environment Court on elements of the
local authoritys decision in particular, if the local authority rejects the plan change request in whole or
in part (Schedule 1, section 27).
Parties to proceedings before the Environment Court may appeal to the High Court on questions of law
(section 299).
Comments from submitters

A number of submitters highlighted the long timeframes and associated costs involved in rezoning land:
Current timeframes for delivering new land supply through rezoning process under the RMA can take 510+ years. (Bay of Plenty Regional Council, sub. 46, p. 5)
PC [Plan Change] 19 was publicly notified in late 2007. Prior to public notification a substantial amount of
analytical work was undertaken including a 169 page Section 32 report, and numerous technical reports.
Following periods of deferment, and hearings, the decision on the plan change was made on 7 October
2009. The decision was subsequently appealed to the Environment Court. Only in December 2014 was
the Plan Change made operative. Therefore more than 7 years passed between when PC19 was first
notified and when it was made operative. (Queenstown Lakes District Council, sub. 56, p. 5)
The statutory consultation obligations and appeal rights were identified as key causes of delay and cost
(these sections are shaded blue in Figure 4.2):
The time it takes for decisions to be made through the Schedule 1 process adds to costs. (Waikato
District Council, sub. 12, p. 7)
Changes to the Schedule 1 process under the RMA would assist to shorten the timeframes for delivery
of shovel ready land for housing. Litigation is, in our experience, one of the main factors slowing the
release of land in a more timely fashion. (Bay of Plenty Regional Council, sub. 46, pp. 56)
The processes required to re-zone land are costly to councils and ratepayers because of the
requirements in the RMA. (Hamilton City Council, sub. 70, p. 11)
The current plan-making process under Schedule 1 of the RMA can be inflexible and is a primary cause
of significant costs and delays. There are opportunities to speed up the plan-making process and
reduce costs, while continuing to enable a high degree of public participation. (Auckland Council,
sub. 71, p. 16)
A key driver for this is the long and uncertain timeframes under the RMA 1991 to rezone land from rural
to urban land uses. TCCs experience suggests that it takes between 4 and 10 years to rezone land
under the Schedule 1 process in the RMA taking account of the preparatory work required before a Plan
Change proposal is notified for submissions through to appeal outcomes and making operative.
(Tauranga City Council, sub. 47, p. 4)
There are number of reasons for the long period of time that PC19 took to proceed to an operative
status. However one key reason is undoubtedly the length of time the Plan change took to work through
Environment Court proceedings. (Queenstown Lakes District Council, sub. 56, p. 5)
High-growth councils take longer to make plan changes operative

Data on plan changes is limited and incomplete. For example, little information exists on the relative
complexity or size of plan changes undertaken by the different types of councils. Nor is it possible to clearly
distinguish plan changes for the rezoning of land from plan changes aimed at achieving other purposes.
However, the available data indicates that the councils that are the focus of this inquiry take longer on
average than other local authorities to complete plan changes. Of the District Plan changes completed by
high-growth councils, 27% of changes took 1000 calendar days or more to make operative, compared to only
16% of changes made by other councils. Similarly, just over half of all District Plan changes completed by
105
106
other councils took less than 400 calendar days to make operative, compared to 31% in high-growth councils
(Figure 4.3).
Figure 4.3
Distribution of operative District Plan changes, by calendar days taken to complete and
type of territorial authority
40%
35%
30%
25%
20%
15%
10%
5%
0%
Less than 200
200 to 399
400 to 599
600 to 799
High growth councils

Source:
800 to 999
1 000 to 1 999
2 000 or more
Other councils
Productivity Commission analysis of MfE data.
Note:
1. Analysis undertaken on completed plan changes for which a date made operative was available. Data starts from the point at
which a proposed plan change is notified for public submission, and does not include the pre-notification period.
Ministry for the Environment (MfE) research also supports arguments from submitters that consultation and
appeals are significant drivers of lengthy timeframes for plan changes. A 2008 analysis of ten Auckland City
Council (ACC) and Franklin District Council (FDC) plan changes prepared for MfE found that most changes
took at least a year from their notification to a decision. For half of the changes, a year or more had elapsed
since the council decision on the proposal. These changes had not yet become operative, because of
pending appeals (Table 4.5).
Table 4.5
Summarised timelines for selected Auckland plan changes

ACC1
ACC2
Inception to notification
1 yr
1 yr
Notification to decision
1.6 yrs
2.3 yrs
Decision to operative
Source:
1.5 yrs+
ACC3
Same
year
1.1 yrs
ACC4
5 yrs
1.2 yrs
ACC5
1 yr
FDC1
4 yrs
FDC2
FDC3
FDC4
FDC5
1 yr
1 yr
1 yr
1 yr
0.1 yrs
0.7 yrs
2.4 yrs
0.6 yrs
2.8 yrs
2.3 yrs
1 yr+ 0.8 yrs+ 1.5 yrs+ 96 days
2 yrs +
1 yr + 11 days
119
days
98 days
Toh & Bell, 2008.
Note:
1. Red text indicates that plan change was not yet operative at the time the report was completed.
Another 2008 report prepared for MfE found that the statutory consultation stages (notification to hearing
date) took up 29% of the average time, and appeal stages (notification of decision to operative data) took up
more than 40% of the average time taken to complete plan changes in the Tauranga City Council, Western
Bay of Plenty District Council and Bay of Plenty Regional Council (Table 4.6).
Table 4.6
Average timeframes for completion of selected Bay of Plenty plan changes

Steps
Preparation of plan change up to notification
Average time
% of total timeframe
21.9 weeks
19.7%
Notification until close of submissions
5.8 weeks
5.2%
Close of submissions until notification of summary of submissions
4.5 weeks
4.1%
Notified summary of submissions to close of further submissions
5.2 weeks
4.7%
Close of further submissions until hearing date
15.6 weeks
14.0%
Hearing date until notification of decision
11.7 weeks
10.5%
Notification of decision until Environment Court appeal
29.4 weeks
26.5%
Operative date
17.0 weeks
15.3%
Total timeframe
111.1 weeks
Source:
Gardiner & Stronge, 2008, p. 6.
Appeals and associated court processes (eg, mediation) appear to account for the larger share of very
lengthy District Plan changes in the councils that are the focus of this inquiry. More time elapsed between
councils making a decision on a plan change and the change being made operative in high-growth councils
than in other territorial authorities (Table 4.7). This is the point at which appeals can be triggered.
Table 4.7
Time taken to complete District Plan changes and make changes operative, by type of
council
High-growth councils
Other councils
Median time taken to complete a plan change (calendar days)
619
399
Median time elapsed between council decision and plan change

made operative (calendar days)
245
110
% of total time on gap between council decision and plan change

made operative
40%
28%
Source:
Productivity Commission analysis of MfE data.
Note:
1. Analysis undertaken on completed plan changes for which a date made operative was available. Data starts from the point at
which a proposed plan change is notified for public submission.
F4.10
High-growth councils take longer, on average, than other local authorities to make plan
changes operative. Consultation obligations and appeals are significant drivers of
longer timeframes for plan changes.
Bigger cities have more interests and issues to manage

The fact that plan changes take longer to complete in faster-growing areas is not particularly surprising.
Faster-growing areas tend to be larger cities, where more residents with interests may be affected and
where more impacts on others (both positive and negative) must be managed. Fast growth also tends to
involve rapid and large changes to existing communities and amenity, leading to resistance from existing
residents. Even in jurisdictions where consultation or appeal rights are more circumscribed than in
New Zealand, rezoning can take many months as the Australian Productivity Commission found in its 2011
review of planning, zoning and development assessments (Table 4.8).
107
108
Table 4.8
Elapsed time to complete land rezoning / amendments to planning schemes in major

Australian cities (calendar months)
Sydney
Melbourne
Southeast
Queensland
Adelaide
Perth
Darwin
Canberra
1678
18
1338
2430
948
16
24
Source:
APC, 2011a.
However, the benefits that can accrue to the wider community from the growth of cities (see Chapter 2)
mean that any barriers to their development must be monitored closely.
Potential reforms to consultation obligations

Submitters proposed two changes to the Schedule 1 consultation obligations:
restrict the ability to make further submissions on proposed plan changes; and
allow for flexibility in notifying site-specific plan changes.
Limiting further submissions

Schedule 1 of the RMA requires that local authorities seek submissions from the public on a notified plan
change proposal, summarise and notify the decisions sought by submitters, and receive further submissions
on matters raised in the summary. Some inquiry participants questioned the additional benefit provided by
the further submissions stage, and recommended that the ability to make further submissions be removed or
constrained:
[T]he plan change process in NZ could be improved by Removing or greatly restricting the use of
further submissions. My experience is that further submissions rarely provide useful additional
information, and are often trivial in nature. Use should be restricted to purely new issues such as
requests to extend plan changes areas to include additional land. (Allison Tindale, sub. 8, p. 11)
Further submissions are important for parties to be able to protect their interest when something is
raised in a submission that they were not aware of and would negatively affect them. However many
further submissions are in support of original submissions. They generally add little value, add more
parties to the process, can take up significant administration time, and add complexity to the whole
process. Thus an option is to allow for further submissions in opposition only. (Western Bay of Plenty
Remove the further submissions process, while enabling hearings panels to invite comments from
directly affected parties who have not submitted if necessary. (Auckland Council, sub. 71, p. 17)
However, in an earlier consideration of proposals to reform Schedule 1, Nolan et al. (2012a) highlighted the
important role further submissions can play in bringing information to decision makers and ensuring affected
parties can have their say:
Further submissions are the very first opportunity that people have to comment on changes to a plan
being sought by other people. These can include requests to rezone areas, to introduce new zones
altogether, or to amend the provisions applying throughout a zone. Such submissions may directly
impact the zoning of someone elses land, where the owner of that land was quite happy with the
notified plan provisions. They may also directly impact on the use or enjoyment of your own land, by
requesting that a new activity be encouraged in the vicinity. The further submission process is the only
chance that people affected by, or otherwise interested in, original submissions have to let the council
know what they think of those changes and is a vital step in order to create a document that reflects the
wider communitys aspirations. The further submission process also improves the odds of all issues
being adequately covered and explored by all submitters, ie an issue raised by one submitter may have
been overlooked by another submitter. (p. 7)
The common law principles of natural justice guide consultation and engagement on proposed regulation.
The principles are designed to promote decisions that are informed and accurate, and which instil a sense of
fairness (Joseph, 2014, p. 1023). In considering whether it is appropriate to limit further submissions on
proposed plan changes, two principles are of particular relevance:
parties should be given adequate notice and opportunity to be heard; and
higher standards of natural justice are likely to apply where a decision may constrain the liberty and
livelihood of an individual.
District Plan rules or provisions that restrict how landowners may use their property are a constraint on
liberty. They might also adversely affect livelihood. For these reasons, it would undesirable to limit the ability
of directly affected parties to make further submissions on proposed plan changes.
F4.11
Reforms that limit the ability of directly affected parties to make further submissions on
proposed plan changes would be undesirable.
The current provisions in the RMA enable a wider range of parties to make further submissions on proposed
plan changes than those that are directly affected. Although the ability to make a further submission was
narrowed in 2009, clause 8 of Schedule 1 identifies the following people and organisations as being eligible:
(a) any person representing a relevant aspect of the public interest, and
(b) any person that has an interest in the proposed policy statement or plan that is greater than the
interest that the general public has, and
(c) the local authority itself.
The current scope to make further submissions appears generous. It may be desirable to tighten the rules
regarding further submissions.
Q4.3
What impact would further narrowing eligibility to make further submissions have on
plan change processes? If eligibility should be narrowed, which parties should be
excluded?
Flexibility in notifying site-specific Plan changes

Auckland Council proposed that plan changes specific to a particular site should be able to be notified on a
limited basis to directly affected parties only (similar to the current HASHA process) (sub. 71, p. 17). The
Housing Accords and Special Housing Areas (HASHA) Act 2013 states that for those plan changes and
resource consent applications that apply to qualifying developments, only the following parties may be
notified:
(a) the owners of the land adjacent to the land subject to the application; and
(b) the local authorities in whose district or region the land subject to the application falls; and
(c) any infrastructure providers who have assets on, under, or over the land subject to the application or
the land adjacent to that land; and
(d) if the land subject to the application or land adjacent to that land is subject to a designation, the
requiring authority that required the designation.
2009 amendments to the RMA gave local authorities flexibility to consult only affected persons over some
resource consent applications (limited notification). Where a resource consent was limited notified, only
these affected persons could make submissions. Someone qualifies as an affected person if, in relation to
the activity covered by the consent application, the adverse effects on the person are minor or more than
minor (but not less than minor). 28 This is a wider threshold than is applied in the HASHA Act. However, the
2009 RMA amendments did not apply to proposed plan changes. Schedule 1 imposes standardised
consultation requirements, regardless of the scope of the proposed plan change, and obliges local
authorities to receive submissions from any member of the public.
28
Section 95E, Resource Management Act 1991.
109
110
The Commission considers that a case exists for giving local authorities more flexibility over notification and
consultation for proposed plan changes that are specific to particular sites. Such changes would help ensure
that those affected by a plan change (eg, current landowners of the site, and immediate neighbours) have a
right to be notified and heard, while opening up opportunities for faster and more efficient rezoning
processes. The Commission would be interested in hearing views on how best to define eligibility to be
notified and consulted on such proposed plan changes.
4.6
F4.12
Giving local authorities greater flexibility over notifying site-specific plan change
proposals could create opportunities for faster rezoning processes, while protecting the
ability of those directly affected to be heard.
Q4.4
How should eligibility for notification and consultation on site-specific proposed plan
changes be defined? Would the definition used in the HASHA Act or the 2009 RMA
amendments be preferable?
The costs and benefits of appeals
The issue of access to merit appeals in the RMA has been the topic of considerable debate for some time,
and involves tensions between increasing the speed of rezoning while maintaining incentives for quality
regulatory outcomes. This section traverses the arguments for and against merit appeals in the planning
system and considers whether alternative arrangements exist that would provide a better balance of quality
regulation and responsiveness in the planning system.
Arguments to limit appeals

A number of groups and individuals have argued that appeal rights under the RMA should be removed or
constrained. Reasons commonly advanced include the effects of appeals on the speed of rezoning, the
impact on the final quality of RMA plan policies, and the use of third-party appeals for discriminatory
purposes.
Speed of rezoning
As outlined in the comments from submitters above, Local Government New Zealand (LGNZ) issued a policy
position in 2011 that recommended removing recourse to the Environment Court over policy decisions and
limiting appeals to matters of law. LGNZ argued that removing merit appeals
could remove at least a third of the average time currently taken to develop a policy statement or plan
and make it operative. This single change will remove the direct time associated with progressing
appeals, mediation, preparing and presenting evidence and court decision-making. More importantly, it
will profoundly change the incentives, behaviour and engagement of all parties in the council process.
(LGNZ, 2011, p. 10)
The Minister for the Environments Technical Advisory Group (2009) argued that merit appeals on RMA plans
should be constrained because of the costs and delays they created, and because the role of courts in
reviewing policy decisions made by elected representatives sat uneasily with New Zealands constitutional
system (Technical Advisory Group, 2009, pp. 910).
Impacts on the final quality of RMA plan policies

Wellington City Council argued that the ability for people to appeal local authority plan change decisions
often led to poorer-quality outcomes:
The appeal process allows developers, community groups and residents to game the system by not
engaging in the process, drawing processes out and seeking sometimes unrealistic outcomes. Many of
the unwieldy and complex rules in the District Plan originate from compromises made as part of the
mediation and appeal processes. (Wellington City Council, sub. 21, p. 10)
Removing barriers to intensification, and limiting discrimination

Another argument mounted for more limited appeal avenues is that third-party appeals are often used to
stymie development, particularly in wealthier suburbs. Third-party appeals tend to be disproportionately
used by affluent social groups (Ellis, 2002) and disproportionately affect multi-unit developments (Kelly,
2011a). A study of resident third-party objections and appeals in the state of Victoria (which has the widest
such appeal rights in Australia) found that appeals were being used to target high-density and social housing
and that development applications
in areas of higher relative advantage are more likely to receive objections and more likely to receive
larger numbers of objections per application than those in areas of lower relative advantage. Further, of
those development applications that receive resident objections, those in areas of higher advantage are
significantly more likely to result in an appeal against the local government determination. (Cook et al.,
2012, pp. 8788)
Discriminatory use of third-party appeals has also been reported in Ontario, Canada (Finkler, 2006). The
New Zealand Housing Foundation noted that existing residents often try to preserve their existing
environment at the expense of the wider community (sub. 69, p. 5).
Arguments in favour of appeals

Others have argued or acknowledged that appeals contribute to better quality decision making, by
providing useful and wider information. LGNZ, in its submission to the Resource Management Reform Bill,
observed that appeals are invariably characterised by high quality analysis and evaluation of costs and
benefit, much of it quantified (by councils and other parties) (LGNZ, 2013a, p. 9). Nolan et al. (2012b) said
that local authorities are more likely to accept submissions under the RMA process where there is a right of
appeal than submissions where there is no right of appeal (for example, submissions on LTCCPs [Long-Term
Council Community Plans] under the Local Government Act 2002) (p. 7).
Appeals may also help correct errors and provide incentives for better performance. Nolan et al. (2012a)
commented that the
reality, which many participants in the RMA process would attest to, is that councils often make
unsatisfactory decisions on many aspects of their policy statements and plans. This can be on major
aspects, but in many occasions it is in areas of detail that can have significant impacts on businessthe
fact that councils know that their decisions can be appealed to the Environment Court means that they
take a much more responsible approach to their decisions. (pp. 56)
The members of the Environment Court similarly noted in their 2014 annual review that the
Court constantly experiences problems with poor drafting of planning instruments not only during the
processing of plan appeals, but also consent appeals. Speed of preparation and promulgation of
instruments appears to be one factor, and the problems include prolixity, inconsistency, illegality, and
objectives and policies lacking rules or other methods. (2014, p. 24)
Nolan et al. (2012a) further argued that the fact that 90% of plan appeals do not involve a formal court
hearing is a measure of their effectiveness in correcting errors:
This does not mean that 90% of appeals are ineffective and do not raise valid issues. It means that 90%
of appeals raise valid or legitimate concerns that are capable of resolution through further discussion,
negotiation or mediation. Cutting out the role of the Environment Court will reduce the effectiveness of
policy statements and plans as the issues will not have been fully ventilated, considered and the most
appropriate provisions arrived at. (p. 7)
Earlier engagement can help

A number of local authorities reported to the Commission, both in submissions and engagement meetings,
that publishing draft plan changes ahead of the notification stage had helped identify issues early and led to
smoother formal decision-making processes and fewer appeals. Wellington City Council noted that
[d]raft plan changes are a useful non-statutory consultation phase which can help businesses and
communities understand [what] the implications of the proposed plan change will be and to seek
changes before it enters the more formal and potentially more costly statutory process. (sub. 21, p. 23)
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Selwyn District Council attributed the success of a plan change that released over 800 hectares of land for
residential development in part to the fact that a
draft plan change was circulated prior to notification and was changed after receiving comments.
Significantly, a formal negotiation process with landowners was initiated to develop Outline
Development Plans to be included in the notified version of PC7, avoiding the need for individual
developers to engage in private plan changes to insert their own ODPs. (sub. 45, p. 5)
Waikato District Council reported that

Council has found that placing greater emphasis on engaging with the community prior to any statutory
consultation process helps to ensure that the statutory process is not burdened by appeals thereby
enabling decisions on the plan change to be made faster or for them to become operative quicker.
Engagement pre-statutory consultation also helps to get more people interested in what is being
proposed so that they can provide feedback and make submissions. This approach builds trust between
Council and the community as plan making is done through consensus building and understanding in
that people affected by land use provisions or zoning changes have the opportunity to comment
throughout the plan development process. (sub. 12, p. 6)
Similarly, Western Bay of Plenty District Council observed that one of its fastest plan changes, which was for
a residential development of 3 000 dwellings, straddled two districts, involved Regional consents, and NZTA
for state highway access was able to progress efficiently because of the collaboration between all the
agencies and the developer and its consultants prior to lodging the private plan change. There were no
appeals (sub. 36, p. 6).
These findings align with the Commissions recommendations in its Regulatory institutions and practices
report that there should be general expectation that exposure drafts of legislation will be published and
consulted on ahead of the formal introduction of Bills to Parliament (NZPC, 2014). The rationale for this
recommendation was that early consultation on detailed proposals helps to
clarify whether the proposals are feasible and efficient; and
iron out problematic provisions.
Similar arguments apply to pre-notification publication of draft changes to District Plans.
F4.13
Both engagement with affected parties on proposed plan changes ahead of their
notification and circulation of draft plan changes for comment are leading practices that
may help to reduce the incidence of appeals.
However, the Commission is reluctant to recommend introducing a general legislative obligation on local
authorities for pre-notification publication of draft plan changes as proposed by Auckland Council (sub. 71,
p. 17), given
circumstances may exist where wider publication is neither necessary nor appropriate (eg, site-specific
plan changes); and
pre-notification publication is more likely to lead to better outcomes if motivated by a desire to engage
substantively with the community rather than by legislative obligation.
R4.5
Local authorities should set policies for the publishing of and consulting on draft plan
reviews or plan changes of interest to the wider community ahead of notification, unless
compelling reasons exist for not doing so.
Do viable alternative arrangements exist?

Although earlier engagement should help reduce the incidence of appeals, it is unlikely to be a panacea.
This raises the question of whether limits on appeal avenues would be warranted.
In considering the place of merit reviews in regulatory systems, the Commission found in its Regulatory
institutions and practices report that access to such appeals should be provided where there is confidence
that they will improve regulatory outcomes and support the objectives of the regulatory regime taking into
account the costs and uncertainty that appeal rights create (NZPC, 2014, p. 286). The problem with
considering changes to appeal rights in the planning system is that while the costs of the current system are
generally accepted (delays in releasing land, associated economic costs and regulatory uncertainty), the
potential benefits (better-quality policy or regulatory outcomes) are contested.
What is clear and what a number of inquiry participants have acknowledged is that any further limits to
appeal avenues would need to be accompanied by processes that provide rigorous scrutiny of plan change
proposals. The introduction of Independent Hearings Panels (IHPs) to consider the PAUP and Christchurch
Replacement District Plan (CRDP) are examples of innovative approaches to this issue, which limit appeal
avenues in return for independent expert analysis of proposed changes to RMA plans (Box 4.3).
Box 4.3
The Auckland and Christchurch Independent Hearings Panels
The Local Government (Auckland Transitional Provisions) Act 2010 established an IHP for the Proposed
Auckland Unitary Plan (PAUP). The Panel may hear submissions on the PAUP, convene conferences of
experts to resolve or clarify issues, refer specific issues and parties to mediation and must make
recommendations to Auckland Council on the Plan (including, where relevant, changes to the Plan).
Council must then accept or reject each of the Panels recommendations. Submitters may make
objections to the Hearings Panel if the Panel declines to consider their submission or strikes out their
submission in whole or in part. Decisions on objections may not be appealed.
Submitters can only appeal to the courts in the following circumstances:
A submitter can appeal to the Environment Court on a matter they submitted on where the
Auckland Council rejected a recommendation of the Hearings Panel.
A person unduly prejudiced, can appeal to the Environment Court where Auckland Council
accepted a recommendation by the Hearings Panel that was beyond the scope of submissions.
Submitters can appeal to the High Court on a question of law where Auckland Council accepts a
Hearings Panel recommendation (MfE, 2013c, p. 4).
The Canterbury Earthquake (Christchurch Replacement District Plan) Order 2014 modified the RMA to
enable an accelerated process for reviewing the Christchurch City and Banks Peninsula District Plans.
As in Auckland, an IHP has been established to hear submissions and make recommendations on a
replacement Christchurch district plan. Objection rights are similar to those for the Auckland IHP.
Appeals may only be made to the High Court on questions of law. Also, only Ministers, the City Council
or submitters (in relation to matters raised in their submission) can appeal to the High Court.
The Auckland Unitary Plan IHP is chaired by Environment Court Judge David Kirkpatrick and comprises
seven other members, with expertise in urban planning, law, tikanga Mori and economics. The
Christchurch IHP is chaired by retired High Court Judge Sir John Hansen and includes members with
significant legal, planning and development experience.
The IHP process retains council ownership over RMA plans, as local authorities have the final say over the
IHPs recommendations and can reject them if they wish. However, in the case of the Auckland IHP, the link
of appeal rights to council decisions over the IHPs recommendations provides incentives for the local
authority to accept the IHPs proposals.
IHPs have the benefit of bringing impartial and expert scrutiny to planning proposals, and can encourage the
resolution of differences between stakeholders through mediation. In addition, by limiting appeal avenues,
the process enables the final RMA plans to be implemented with greater certainty. Yet the processes require
significant resources and are time-intensive. In the case of the Auckland IHP, the Panel commenced hearings
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in September 2014 and has to report by 22 July 2016. The Christchurch IHP was established in late 2014 and
must complete its work by 9 March 2016. Both IHPs are supported by secretariats and the Auckland IHP also
has a team of 15 mediators and facilitators.
The two IHPs are at different stages, and neither has provided its recommendations to its respective council.
This means that it is too early to form a definitive judgement about their effectiveness. However, a number of
inquiry participants spoke positively to the Commission about the role and performance of the IHPs to date,
in particular about the depth of expertise and rigour the IHP members have brought to the issues under
consideration. Depending on the outcomes of the two IHP processes in Auckland and Christchurch, scope
may exist to make IHPs a permanent feature of the planning system, with an accompanying reduction in
appeals avenues.
R4.6
The Ministry of Business, Innovation and Employment and the Ministry for the
Environment should, once the work of the Auckland and Christchurch Independent
Hearings Panels (IHPs) is complete, evaluate the IHP processes, with a view to deciding
whether IHPs should become a permanent feature of the planning system.
IHPs will not be the complete solution to providing a better balance between faster rezoning processes and
high-quality regulatory outcomes, as the process of reviewing and refreshing District Plans has changed
following amendments to the RMA enacted in 2009. Until 2009, local authorities were required by law to
review their RMA plans in full every 10 years. In response to concerns about the time taken to make plans
operative, the RMA was amended to enable councils to review their plans on a rolling basis, updating them
where necessary through plan changes. Full IHPs are unlikely to be an efficient or proportionate mechanism
to evaluate an individual plan change.
An alternative, suggested by some inquiry participants, would be to require independent commissioners to
chair or make up hearings panels to consider proposals for plan changes and then limit appeals on their
decisions (Allison Tindale, sub. 8; Auckland Council, sub. 71). Queenstown Lakes District Council uses
independent commissioners for hearings on all notified resource consent applications, 29 and both
developers and the Council commented to the Commission that this had led to better outcomes and, as a
result, reduced the incidence of appeals.
In its local government regulatory report, the Commission found that, under current law, local authorities
may have very limited ability to diverge from the recommendations made by independent commissioners.
The Commission also noted that a requirement to use independent commissioners could weaken the
accountability of councillors to the community for the decisions made (NZPC, 2013). A counter-argument
(explored in more detail in Chapter 9) is that the planning system does not always represent the full range of
community interests. In addition, as explored in Chapter 5, considerable room exists to improve the
development of land-use regulation. Some form of impartial check could help provide better balance and
quality.
One way of balancing local authority ownership of planning decisions with greater rigour and scrutiny would
be to replicate the options available under the IHP process. Under this approach, councils would be given
the right to reject recommendations from independent commissioners. But if they did so, submitters and
applicants would retain the ability to seek a merits appeal. Where councils accepted commissioner
recommendations, appeal avenues could be limited to points of law or judicial review.
Q4.5
What has been the experience of using independent commissioners to make planning
decisions? Do independent commissioners provide sufficient rigour and impartiality to
justify further limits on appeal avenues? Would there be merit in allowing local
authorities to reject recommendations from independent commissioners?
Until recently, Queenstown Lakes District Council used independent commissioners for all resource consent applications. It changed this policy to reduce
costs and delays for applicants.
29
4.7
Conclusion
Overseas jurisdictions apply a number of specific processes and techniques to ensure an adequate supply of
land for housing. However, few of the key processes identified by the Commission are used to their full
potential in New Zealand. Potential exists to make a difference to the supply of land and housing through:
greater and more rigorous use of land and housing supply targets and monitoring; and
the identification and release of spare public land for housing purposes.
Scope may also exist to limit covenants so as to reduce constraints on the carrying capacity of land.
High-growth councils appear to face greater challenges in rezoning land promptly than other local
authorities, with appeals and consultation obligations being key sources of delay. The benefits to the wider
community of the growth in cities mean that these barriers should be monitored and reviewed. Potential
exists to remove some of these barriers by giving local authorities more flexibility to only notify directly
affected parties over rezoning proposals that are specific to a particular site. Scope may also exist to further
limit eligibility to make further submissions on these proposals.
Reforms to appeal avenues require careful trade-offs to be struck between the goals of speeding up
rezoning processes and ensuring that they deliver quality outcomes. The Commission is interested in
evidence on whether greater use of independent commissioners in planning decisions would provide the
level of rigour required to justify further restrictions on appeals.
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Regulations and approval processes
Key points
Most land use regulations in New Zealand are made under the Resource Management Act (RMA)
through District Plans.
Specific land use regulations affect the cost and supply of housing. In some cases (especially
minimum apartment size and balcony requirements and minimum parking requirements) the costs
imposed exceed likely benefits.
Key sources of unnecessary regulatory costs are multiple or conflicting objectives in District Plans,
inadequate analysis before rules are introduced, and poor overlaps with other regulatory
frameworks.
The place of housing and urban environments in the RMA needs to be clarified.
Uncertainty about council obligations and problems coordinating between different units within
councils create costs and delays for developers. Processes to improve internal council coordination
(eg, one-stop shops) and greater use of electronic planning tools help reduce these delays. Some
scope exists for greater standardisation and liberalisation within the national planning system.
Inclusionary housing policies provide requirements or incentives for developers to provide

affordable or lower-cost housing. They are a common feature of overseas planning systems, but
are not prominent in New Zealand. Only Auckland Council and Queenstown Lakes District Council
have inclusionary housing policies in their current or proposed District Plans, although Special
Housing Areas and Housing Accords provide more opportunities to introduce such policies.
Inclusionary housing policies should not be a substitute for planning system reform. However, they
can be seen as a second best option, where planning system reform fails to deliver sufficient
flexibility or fast enough responses to longstanding housing deficits.
To be successful, inclusionary housing policies should be designed with the nature of the current
planning system in mind. In New Zealands case, this means that incentive-based (rather than
mandatory) policies are more suitable. Inclusionary housing policies are also most likely to succeed
where they are part of a wider suite of tools, most of which require central government support.
5.1
Introduction
This chapter explores policies and practices under the following thematic leading practices for planning
identified in the Commissions review:
proportionate and well-targeted regulations; and
streamlined approval processes.
It also considers the role of inclusionary housing policies in planning systems.
5.2
Proportionate and well-targeted regulations
Land use regulations can play an important part in managing externalities (such as overshadowing,
congestion and pollution) and reducing transaction costs, by laying out clear requirements for the use of
land and avoiding the need for multiple contractual negotiations between individuals. However, as
discussed in Chapter 2, land use regulations can affect the price and supply of housing. To provide an
overall benefit to the community, regulations must be designed with all the relevant costs and benefits in
Chapter 5 | Regulations and approval processes
mind. Evidence collected through this inquiry suggests that some local authority regulations are imposing
high compliance and economic costs, leading to increases in the cost of development and the loss of
potential housing. The costs of some particular regulations appear to outweigh any likely benefits. Problems
with excessive regulatory costs stem from a number of sources, particularly conflicting objectives,
inadequate analysis and poor targeting.
5.3
How land use regulations are made in New Zealand
Land use rules and regulations are made either under the Resource Management Act (RMA) or the Local
Government Act (LGA). The majority are made under the RMA in District Plans.
RMA processes
District Plans lay out the requirements that developments must meet to gain a resource consent or be
exempt from consenting requirements. These requirements typically include such aspects as requirements
to set buildings back from the street by a minimum distance, minimum lot sizes, site coverage rules (eg, how
much of a lot may be taken up with a building), building height limits and restrictions on altering heritage
buildings or areas. Requirements vary between different cities Plans, and within a single citys Plan for
example, minimum lot sizes are often far larger in zones at the fringe of city than those closer to the centre.
A measure of regulatory restrictiveness in District Plans is the type of classification applied to a particular
development activity (eg, earthworks), and how the activity is defined. To prepare land for housing,
developers may need to obtain a resource consent. Whether or not a resource consent is required depends
on the classifications applied to the activity. Under the RMA, there are six types of classification (Box 5.1).
Box 5.1
Activity classifications under the Resource Management Act
Permitted: No resource consent is required.
Controlled: Resource consent is required. The consent authority must grant consent if the
application contains all necessary information. Conditions may be imposed only for matters over
which control is reserved in a National Environmental Standard (NES), Plan or proposed Plan.
Restricted discretionary: Resource consent is required. The consent authoritys discretion is

restricted to clearly specified matters (eg, in a NES, Plan, or proposed Plan). Where a consent is
granted, the activity must comply with the requirements, conditions and permissions specified in
the relevant documents.
Discretionary: Resource consent is required. The consent authority has broad discretion over
whether to grant or refuse a consent. If granted, conditions may be included. A discretionary
activity consent may or may not be granted, depending on its circumstances.
Non-complying: Resource consent is required, and may only be issued if the consent authority is
satisfied that the adverse effects on the environment will be minor, or that the application is for an
activity that will not be contrary to the objectives and policies of the relevant plan.
Prohibited: No resource consent may be issued.
Source:
Palmer, 2012.
More liberal Plans make greater use of permitted, controlled or restricted discretionary classifications,
as these either do not require a resource consent or limit the discretion of local authorities in considering
consent applications, and reduce the need for consent applications to be notified for public submissions.
Liberal Plans also apply more enabling definitions of activities that require consents (eg, smaller or no
minimum lot sizes, or higher building limits). In making rules or requirements through District Plan provisions,
local authorities are required to carry out specific consultation and analytical processes. Some of these were
described in Chapter 3.
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Where the local authority considers that a development could have more than minor effects on the
environment, the resource consent application will be notified. The two forms of notification are limited
notification and public notification. Where an application is publicly notified, the local authority advertises
the application and seeks submissions from the general public. For limited notification, only affected
persons (eg, immediate neighbours) are advised and can make submissions.
Most resource consents sought are for land-use activities. Of the resource consent applications processed in
2012/13, 66% were for land use, with a further 17% for subdivisions (MfE, 2014, p. 3). Land use and
subdivision consents are generally processed by district or city councils. In 2012/13, 2% of subdivision
consent applications and 1% of land use resource consent applications were publicly notified; (2% of
subdivision and land use applications were limited notified.
Local Government Act processes

The LGA allows territorial authorities to set bylaws for one or more of the following purposes:
protecting the public from nuisance
protecting, promoting, and maintaining public health and safety
minimising the potential for offensive behaviour in public places. (s. 145)
In preparing bylaws, local authorities must:
determine whether a bylaw is the most appropriate way of addressing the perceived problem and
consider whether a proposed bylaw gives rise to any New Zealand Bill of Rights Act implications
(s. 155(2)); and
use a special consultative procedure (SCP) (Box 5.2) if the bylaw concerns a matter identified in the
councils significance and engagement policy as being of significant interest to the public or the
council considers there is, or is likely to be, a significant impact on the public due to the proposed
bylaw (s. 156(1)(a))
Box 5.2
Special consultative procedures
Local authorities are required by the LGA to use the SCP in exercising specific powers. Where a local
authority proposes to introduce a bylaw, the SCP requires a local authority to prepare a:
statement of proposal, including a draft of the bylaw, the reasons for its proposed introduction
and a report on the consideration of the perceived problem that the bylaw would address, the
choice of bylaw as the most appropriate remedy of addressing the problem, and any implications
under the Bill of Rights Act; and
summary of information, which must be a fair representation of the major matters in the
statement of proposal.
The summary must be distributed as widely as reasonably practicable, having regard to the content, as
a basis for consultation. The summary should indicate where someone can inspect or obtain the
statement of proposal, and the timeframe for submissions.
Source:
Palmer, 2012, pp. 246, 248.
Bylaws of relevance to housing typically deal with water supplies and management, fire prevention and
traffic management.
5.4
Impacts of regulation on housing supply
Land use regulations in District Plans affect the supply and price of development capacity, by limiting the use
of particular pieces of land and adding steps to development processes. In some cases, District Plan rules
also impose restrictions or obligations on the types of dwellings that can be built. This adds costs to
development, reduces the supply of developable land and choice of dwellings, and adds to the final price of
housing.
Increases in the cost of development

Grimes and Mitchell (2015) interviewed 16 Auckland developers to understand how pre-Unitary Plan rules
and regulations influenced developments. The report focused on the costs created by rules and regulations,
and explicitly did not look at benefits. The developers were selected to provide a range of development
types, including greenfield subdivisions, infill/brownfield developments, residential builders, suburban and
CBD apartment developers, and retirement village developers. The estimated cost impacts of individual
rules are outlined in Table 5.1 below. According to Grimes and Mitchell, the typical cost range of the total
impact of regulations is estimated to vary between $32 500 and $60 000 per dwelling in a subdivision (these
figures exclude Watercare, reserve and development contributions). For apartments, the equivalent impact
was $65 000 to $110 000 for each unit (2015, p. 2).
Table 5.1
Cost impacts of Auckland planning rules and regulations

Rule and regulations
Increase in the cost on each dwelling

Apartments
Subdivisions
$18 000 to $32 000
No definitive information
Section size / density controls
n/a
$11 000 to $19 000
Site coverage / setbacks / green space
n/a
$5 000 to $10 000
Floor to ceiling heights
$21 000 to $36 000
$8 000 to $15 000
Balcony area
$40 000 to $70 000
n/a
n/a
$4 000 to $7 000
$3 000 to $6 000
$4 000 to $16 000
n/a
$10 100 to $21 250
Mix of dwelling units
$6 000 to $15 000
n/a
Other urban design considerations
$1 500 to $8 000
$9 000 to $20 000
No definitive information
$6 000 to $10 000
Building height limits
Green star ratings

Extended consent process
Provision of additional infrastructure
Heritage and tree protection

Source:
Grimes & Mitchell, 2015.
Loss of potential housing

Land use regulation can also reduce supply by prohibiting various types of housing, making them
uneconomic to produce or limiting the ability of supply to meet consumer demand:
Grimes and Mitchells survey of Auckland developers compared the number of dwelling units under the
developers original proposal with the final number in the consented outcome. They found a median loss
in capacity of 22%. The loss of capacity in apartments was primarily due to height restrictions or view
shaft rules. 30 In other developments, the loss in capacity related to urban design requirements, tree and
heritage building protection, and extra infrastructure requirements (2015, pp. 3536).
In a report prepared for Wellington City Council on housing and residential growth, The Property Group
reported that the introduction of stricter controls on infill dwellings and subdivision had materially
reduced development capacity in the city (Wellington City Council / The Property Group, 2014, p. 42).
Partly as a result of this tighter regulatory regime, The Property Group concluded that the actual forward
Viewshaft rules limit the ability to build up in particular areas of Auckland, so as to maintain public visibility of key geographical icons (eg, hills and
volcanic cones).
30
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120
supply of infill capacity was in the order of 10 years, not the 2855 years estimated by Council officers
(ibid, pp. 5455).
A study prepared for the Registered Master Builders Federation and Construction Strategy Group
highlighted the impact of a council requirement that terraced housing developments be serviced by a
separate garage access laneway: This reduced the net space devoted to housing within the subdivision,
and required larger individual section sizes (2015, p. 10).
The New Zealand Housing Foundation commented that an increase to minimum floor to ceiling heights
in the Proposed Auckland Unitary Plan (PAUP) increases the cost of an apartment and reduces the
number of apartments within the same building envelope. It is difficult to understand the justification for
such a rule. This makes for a less efficient use of the land for housing (sub. 69, p. 9).
Queenstown Lakes District Council (QLDC) noted that, in reviewing its operative District Plan, it had
found that the Plans rules did not deliver on the objective of promoting housing diversity:
Development controls in the High Density Zone are so restrictive as to make meaningful
intensification on many sites difficult. In particular, height and recession plan controls make even
two storey building form hard to achieve in some locations.
There is no Medium Density Zone to provide for more affordable housing typologies such as
townhouses, duplexes and terrace housing.
Onerous private open space requirements affect development feasibility, and do not necessarily
offer significant amenity value. (sub. 56, pp. 34)
Unduly costly requirements

The Commission identified a number of regulatory requirements that appear to impose costs above their
likely benefits minimum apartment floor size rules, apartment balcony size requirements, minimum parking
requirements and building height limits.
Minimum floor size and balcony requirements for apartments

MRCagney (2014) assessed the impact of minimum apartment floor and balcony size requirements in the
PAUP. It sets minimum floor areas of 3040 square metres (depending on the zone) and minimum balcony
areas of 810 square metres. MRCagney found that:
these rules were likely to have a material upwards effect on the costs of small apartments, with an
expected price increase of approximately $50 000-$100 000 per apartment, or 25-50%;
the rules are expected to be associated with economic costs of approximately $10 million p.a.; and
no evidence exists to support the contention that the PAUP rules will result in material improvements in
the well-being of affected residents.the PAUP rules would need to reduce the total burden of illness in
the affected population by approximately 9% in order to generate economic benefits that exceeded
their costs. Such an improvement in well-being is unlikely. (MRCagney, 2014, p. 22)
QLDC noted that an 8 square metre balcony can add between $30,000 to $40,000 to the purchase cost of
an apartment, depending on structural approach. As a result, the Council is now proposing to remove
minimum private open space requirements in its high-density residential zone, on the grounds that the
decision on how much and in what form private open space is provided is best left to the market (sub. 56,
p. 4).
F5.1
Balcony or private open space requirements for apartments create costs that appear to
outweigh any likely benefits.
R5.1
Urban territorial authorities should remove District Plan balcony / private open space
requirements for apartments.
Minimum floor size rules limit the ability of individuals to trade off private space for location, and limit the
supply of smaller, cheaper dwellings, increasing housing costs more widely. As a result, they can have the
effect of encouraging crowding and other undesirable behaviours, as people with limited incomes seek to
minimise their housing costs (Schlesinger, 2014; MRCagney, 2014, p. 20).
A number of North American cities have relaxed or waived minimum floor size rules in specific cases to allow
the development of micro-apartments (Wong, 2013; Romney, 2012). In New York, the city government
launched a competition to pioneer the development of innovative 2528 square metre micro-apartments on
a publicly owned site. These developments are seen as playing an important role in better matching housing
supply with changing demographics (eg, more single-person households) and providing cheaper living
options.
Auckland faces similar demographic and affordability pressures to some North American cities. The
Auckland Plan notes that
over two thirds of Aucklands current housing stock has three bedrooms or more, although nearly
half of all households consist of only one or two people, and
Family types will continue to change over the next 30 years[with] a greater proportion of couples
without children, and a smaller proportion of two-parent families with children. (Auckland Council,
2012a, paras 62021)
Auckland Council has estimated that the city needs to produce 13 000 new dwellings a year to keep up with
population growth and change (Auckland Council, 2012a). Auckland got closest to this level in the years
20022004, driven significantly by a growth in apartments. It also coincided with falling average apartment
sizes. The trend of falling average size stopped after the introduction of Auckland City Councils minimum
apartment size rules in 2005 (Figure 5.1).
Figure 5.1
Building consents and mean floor area of apartments consented in Auckland, 19982014
Regulatory change introduced
14 000
130
12 000
110
Building consents issued
100
10 000
90
80
8 000
70
60
6 000
50
40
4 000
30
20
2 000
Mean apartment floor space (sq m)
120
10
0
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Other residential buildings
Source:
Apartments
Mean apartment floor area
A number of reasons are cited for the imposition of minimum apartment size rules in New Zealand in
particular, concerns about the adequacy of ventilation, natural light, internal noise insulation and visual
amenity (Bird, 2005; Orsman, 2005). While issues such as ventilation, natural light and noise insulation are
important, they are better resolved through targeted regulation rather than blunt tools such as minimum size
rules. In addition, given that these are largely issues of building safety and sanitation, they are best dealt with
through the Building Act and Code rather than District Plans. The Ministry of Business, Innovation and
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Employment (MBIE)s 2014 Briefing to the Incoming Minister of Building and Housing noted that a need
exists to update the code and associated guidance relating to multi-unit dwellings (air quality, lighting,
acoustics, access etc) (MBIE, 2014c, p. 14). Once this work is complete, urban local authorities should review
minimum apartment size rules in their District Plans, with a view to removing them.
F5.2
Controls on apartment sizes were introduced in New Zealand in part because of

concerns about the adequacy of ventilation, natural light and internal noise insulation.
These concerns are best dealt with through targeted regulation and through
amendments to the Building Code.
R5.2
Once the Ministry of Business, Innovation and Employment has completed planned work
on updating Building Code rules and guidance related to air quality, lighting, acoustics
and access in multi-unit dwellings, local authorities should review minimum apartment
size rules in their District Plans, with a view to removing them.
Minimum parking requirements

Minimum parking requirements (which oblige developers to provide a certain number of parking places with
a development) also contribute to higher housing costs:
Jia and Wachs (1998) study of the San Francisco housing market found that off-street parking (required
for each new dwelling unit) increased the price of a single-family dwelling by 11.8% and the price of a
condominium by 13%.
An analysis of a new apartment project for the University of California Los Angeles found that parking
requirements added 25% to the cost of building (Shoup, 2005, p. 148).
Grimes and Mitchell (2015) were unable to accurately assess the impact of parking requirements in
Auckland, but reported developer comments that the net cost could be $32 000 for each car park (p. 35).
Two key reasons for the higher housing costs are inefficient use of land and increases in construction costs,
especially where parking is provided underground. In New Zealand, land use inefficiencies through the
requirement to provide for car parking can be significant. Donovan and Munro (2013) note that many
cities and towns in New Zealand require approximately one car-park for approximately 30m2 of gross
floor areas (GFA). Every individual car-park typically requires 30m2 (once space for access and
manoeuvring is considered), so these requirements mean that 30m2 of parking needs to be provided to
support 30m2 of GFA, ie, a 1:1 ratio between space used for parking and floor area. In this situation
parking will take up as much space as the development itself. (p. 50)
Minimum parking requirements are often supported on the grounds they can offset congestion on roads,
although their effectiveness is contested. Shoup cites evidence from a number of cities of congestion
created by drivers circulating looking for free parks (2005, pp. 27694). Donovan et al. (2011), using the
example of the Sylvia Park commercial development in Auckland, suggest that
minimum parking requirements, rather than being a minimum, are actually far in excess of what should
be considered reasonable. We should also note that minimum parking requirements are based on
surveys results of free, unrestricted parking. Obviously, these demands will be far higher than the true
demand. (p. 49)
In effect, parking minimums act as a subsidy to car owners by oversupplying parking and are likely therefore
to encourage excess use and congestion. An assessment of the economic impact of parking minimums in
Takapuna, Onehunga and Dominion Road (areas considered to be typical of the medium density, mixed
use urban areas in Auckland that the dUP [draft Unitary Plan] expects will intensify in future) found that the
costs exceeded benefits by a ratio of 6:1 (MRCagney, 2013, p. 39).
To the extent that removing parking requirements creates congestion problems, demand management
techniques can alleviate such problems (Donovan et al., 2008). Auckland Councils introduction of variable
time limits in its parking places is one example. Wellington City Council is considering introducing dynamic
pricing for parking in the central city, with fees changing in response to the number of available parks
(Wellington City Council, n.d. (a)).
A number of New Zealand cities have removed or eased parking minimums in their centres, with positive
results. Donovan and Munro (2013) attribute the renaissance of the Auckland city centre and increased
density to the removal of minimum parking requirements by the then City Council (p. 50). The Property
Council commented that removing minimum parking requirements for residential development in the
Wellington central business district had really helped create a vibrant central city (Annex 7 to sub. 33, p. 4)
and
has enabled the market to determine the number of car parks required; and meant that money, which
would otherwise have had to be spent on providing car parks, can be spent on better design and
features. It has also enabled more affordable housing and apartments to be built. (Annex 9 to sub. 33,
p. 2)
F5.3
Minimum parking requirements create land use inefficiencies and higher construction
costs, contributing to increased housing costs. In addition, they represent an effective
subsidy to car users, encouraging excessive use.
R5.3
Urban territorial authorities should remove District Plan minimum parking requirements,
and make more use of traffic demand management techniques.
Building height limits

Height limits can significantly reduce development capacity. This has implications not just for housing supply,
but also for individual incomes and wellbeing and for the environment (as cities are forced to move outwards,
increasing transport times). These impacts are likely to be felt most strongly by people on lower incomes, who
are unable to afford the higher housing prices in the inner city that result from the restrictions:
Dings (2013) review of height restrictions in Beijing suggested that they had caused
housing output to drop by 70%, and land investment to drop by 85%...Unachieved construction space
caused by the building height restrictions also leads to a shortage in the housing supply, which in turn
contributes to urban sprawl and shift housing demand curve outward. As a result, housing prices
increase by 20% and the city edge increased by 12%. (p. 494)
Bertaud and Brueckners (2005) welfare-cost calculation of height restrictions in Bangalore found that
they were likely to have increased the overall footprint of the city by up to 17%, leading to higher
transport costs for people living at the fringe. These higher transport costs made up 1.5%4.5% of
household consumption. Bertaud and Brueckner observed that
in a country like India, where vast numbers of people live on the edge of impoverishment, a welfare loss
of this magnitude may represent the difference between poverty and non-poverty status for many
households. (p. 123)
Montgomerys (2003) study of the introduction of height restrictions in New York in 1885 concluded that
they helped artificially protect rents and returns on unsanitary and crowded tenement blocks. By
inhibiting the development of new, taller residential buildings which were built to a higher quality than
the existing tenements the rules derailed a natural market process that would have lowered rents and
increased quality. (p. 505). Rising vacancies and rent declines that had resulted from moderate
overbuilding of higher buildings prior to the introduction of the restrictions reversed sharply over the
188587 period and crowding in some of the Lower East Side tenements increased (pp. 504 and 506)
In the case of New Zealand, Grimes and Mitchell (2015) found that height limits in Auckland had a large
impact on the number of units produced in a development. Reductions ranged from 029% and, in the
single case where capacity was not reduced, the developer was required to significantly change the
developments design (p. 29).
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NZIER found that:
Auckland was less dense at its centre and denser at the fringes than would be the case in the absence of
land use rules such as height limits 31 (2014b, p. 12); and
each kilometre a household lived away from the Auckland city centre increased the yearly cost of
commuting by $738 (2014b, p. ii).
Building height limits do have a role to play in managing negative externalities created by development,
such as overshadowing of neighbouring properties or the creation of wind tunnels in streets. However, many
of the benefits created by height restrictions are likely to be private and/or localised. Donovan and Munro
(2013) state that building height limits
often become a tool through which local residents seek to block new development. In these cases
building height limits effectively get hijacked by pecuniary local interests (ie homeowners) who have a
vested interest in constraining the supply of new development in their surrounding areas because of
negative localised effects (perceived or real). (p. 49)
In comparison, as noted in the studies cited above, the costs of reduced development capacity, higher
housing and transport costs are felt across a city and can be large, particularly for some members of the
community. Donovan and Munro concluded that while tall buildings no doubt do have negative impacts,
we have not found any evidence to suggest that the economic costs imposed by building height limits
outweigh the economic benefits of increased density (ibid).
Before introducing building height limits, local authorities should consider the relative sizes and distributions
of the resulting costs and benefits. It is notable that no cost-benefit analysis was prepared as part of the
section 32 evaluation report for the proposed building height rules in the PAUP (Auckland Council, 2013a,
p. 9).
5.5
F5.4
Building height limits contribute to housing shortages and higher house prices, and
force cities to move outwards, increasing transport costs for some members of the
community. They weigh against objectives of increasing urban density and using city
land more efficiently. Although building height limits can play a role in managing local
externalities from development, they also create costs that are felt across a city.
R5.4
Local authorities should undertake robust cost-benefit analyses before considering the
introduction of building height limits, and should lift current limits where it cannot be
demonstrated that the benefits outweigh the costs.
Q5.1
Do other land use rules impose costs above their benefits? What evidence exists of
excess costs?
Problems with regulatory development
Three sources of unnecessary regulatory cost emerged from the inquiry:
multiple or conflicting objectives in regulatory plans;
inadequate analysis before rules and regulations are introduced; and
poor interaction with other regulatory regimes.
31
The study used a hypothetical three-storey height constraint limit as a proxy for the combined effect of land use regulations.
Multiple or conflicting objectives

District Plans cover a range of issues and include a number of policies and rules. In some cases, these
policies and rules can conflict. Conflicting objectives were particularly prominent in commentary on the
PAUP and the proposed Christchurch Replacement District Plan (CRDP):
MBIE and the Property Council highlighted the tension within the PAUP between the Plans objectives of
encouraging the provision of lower-cost housing and its requirements for new developments with more
than five dwellings to achieve a minimum 6-star level from the New Zealand Green Building Council
Homestar Tool (2013), or certification under the Living Building Challenge (2013) (MBIE, 2014b, pp. 13
19; Property Council, sub. 33, pp. 12). A similar requirement exists in the CRDP (Property Council,
sub. 33, p. 9).
The combination of zoning rules and overlays (which apply specific rules across all or a number of
zones, such as controls on modifying or demolishing heritage buildings) significantly reduces the
opportunities for new housing in the Auckland region. This runs against the PAUPs objective of
providing sufficient land and development capacity (Property Council, Annex 1 to sub. 33, p.29; Boffa
Miskell / Cranleigh, n.d.). The complex interaction of rules and overlays also create inconsistent controls
and increase costs (Vector, sub. 11, pp. 23). The Canterbury Earthquake Recovery Authority (CERA)s
submission on the CRDP similarly commented:
The detailed rules and development controls do not give effect to the objectives [of increasing housing
supply]. It appears likely that the proposals will fall short of delivering the level of capacity that will be
needed in Christchurch to provide for housing needs and to support the vision from the CCRP
[Christchurch Central Recovery Plan] for central Christchurch to become the thriving heart of an
international city. (CERA, 2014, p. 15)
The cumulative effect of multiple rules can also lead to disconnects between the stated objectives of a
District Plan and its actual impacts on development capacity:
While most RMA plans endorse some degree of residential intensification, many plans contain
provisions that can act as disincentives to achieving this aim. These include provisions such as requiring
a minimum area of land per dwellings (irrespective of dwelling size), open space requirements per
dwelling, car parking rules and restrictions on converting existing houses into flats. (New Zealand
Transport Agency, sub. 73, p. 12)
The proposed Christchurch District Replacement Plan is very large and complex. There is a clear
disconnect between the Plans objectives (broadly stated), which encourage development, and the
many and varied detailed requirements which have to be worked through to establish the status of an
activity and determine whether a consent is required. (Foodstuffs, sub. 50, p. 4)
Inadequate analysis before rules and regulations are introduced

The quality of underpinning analysis for new land use regulation by councils can be variable. The
Commission explored this issue in its Towards better local regulation inquiry and sought an independent
assessment of nine zoning decisions by councils. The results were that
only three decisions had complete and convincing analysis of the options. For a further three, options
analysis was partially complete and convincing, with the remaining four incomplete or unconvincing;
and
five of the nine decisions had incomplete or unconvincing or partially complete and convincing
implementation and monitoring advice (NZPC, 2013, pp. 26162).
More broadly, the Commission found that local government regulation in general could be improved by
more specific tailoring of regulatory objectives to local conditions, better options analysis and better
implementation analysis. (NZPC, 2013, pp. 15657).
Recent examples further illustrate the point. MBIEs submission on the PAUP highlighted flaws in the analysis
underpinning the proposed Homestar certification requirements. MBIE concluded that the assumed benefits
to homeowners were overstated, and that
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the cost-benefit analysis underlying the introduction of these provisions is questionable, such that
the increase in threshold costs to purchase a new home for first home buyers is not substantiated
by the medium-term payback
the benefit in reducing costs to society of infrastructure development is not substantiated, and is
problematic given the targeting of the provisions to only certain developments (MBIE, 2014b,
pp. 1314.
Similar points were raised by the Property Council New Zealand in its submission on the PAUP. It also noted
the lack of consideration of voluntary or incentive-based approaches to encourage greater environmental
sustainability (Annex 1 to sub. 33, pp. 12-14).
In some circumstances, underpinning analysis is missing entirely. This appears to particularly be the case with
design guides, which are used in many District Plans to encourage particular forms of development. A review
by the Registered Master Builders and Construction Strategy Group on the impacts of building regulation on
housing affordability concluded that the
quality of the Section 32 analysis varies widely and is often absent.Although Section 32 mandates
an environmental, economic, social and cultural cost-benefit analysis of proposed District Plan changes,
there appears to be no explicit evaluation of these impacts in Design Guides. (2015, p. 8)
The Property Council New Zealand suggested that a key weakness in much local authority regulation was a
lack of understanding of the commercial impacts of requirements and decisions:
In practice, many council officials do not take into account the needs of developers and implications on
commercial feasibility when taking decisions and imposing requirements. In this respect, we are not
advocating that development feasibility is the only factor that is relevant rather that it is a key relevant
matter for consideration, which is currently largely ignored or misunderstood by council officers. This
leads to disproportionate and often conflicting requirements being placed on developers and has
significant implications for the commercial viability of development and housing supply. (sub. 33, p. 1)
The outcome of insufficient consideration of commercial impact is often impracticable or inflexible rules:
An example of inappropriate use of design guidelines is a development in Snells Beach (Auckland)
where the million dollar view was to the water but Council rules required the main living area to face the
street (CPTED) [Crime Prevention through Environmental Design] the rules did not fit the site.
(Western Bay of Plenty District Council, sub. 36, p. 4)
An example of a rule lacking practical implementation ability is the requirement, in the Wairakei
residential zone, for garages to be located behind the line of the primary building frontage. Most
current home building designs do not meet the requirements of this rule, as they place the garage in
front of the primary building frontage of the site. (Property Council New Zealand, Annex 9 to sub. 33,
p. 4)
F5.5
Multiple and conflicting objectives in RMA plans reduce the ability of those plans to
provide sufficient land and development capacity.
F5.6
Inadequate underpinning analysis for District Plan rules and provisions is a key source of
unnecessary regulatory costs for developers.
Poor interaction with other regulatory regimes

A number of current or proposed District Plans impose controls on the internal design or construction of
buildings. In some cases, these controls appear to exceed the standards set by the Building Act. Recent
examples include the proposals in the PAUP and CRDP to introduce Homestar or other environmental
certification requirements on new dwellings. Such overlaps between regulatory regimes create uncertainty
for developers. More importantly, recent court cases suggest that District Plan provisions which exceed the
Building Act may be unlawful (Box 5.3).
Box 5.3
University of Canterbury v The Insurance Council of New Zealand
University of Canterbury v The Insurance Council of New Zealand (2014) concerned the extent to which
the Christchurch City Council (CCC) was entitled, under the Building Act 2004, to require the
strengthening of earthquake-prone buildings (being a building below the 34% threshold for seismic
strengthening in the building code, or any new building standard).
CCC had changed its policy regarding earthquake-prone buildings in 2010, following the September
earthquakes. The new policy provided that 67% of the new building standard was the preferred level of
seismic strengthening when repairing or reinstating damaged buildings. The Insurance Council of
New Zealand applied for judicial review of aspects of the CCCs policy, and the University of
Canterbury and Oxford Body Corporate were added as parties.
The High Court, Court of Appeal, and Canterbury Earthquakes Royal Commission each found that a
council is not entitled to require an earthquake-prone building to be strengthened greater than 34% of
the new building standard. The Supreme Court dismissed an appeal from the University against these
legal judgments.
In reviewing the decisions of the lower courts, the Supreme Court touched on the issue of the division
of responsibility between central government and local government. It observed that the Building Act
gives a limited role to territorial authorities to set standards under the Act. In particular:
section 17 requires that all building work must comply with the building code to the extent required
by the Act;
section 18 provides that a person carrying out building work is not required to achieve performance
criteria additional to or more demanding than those in the building code; and
section 49 provides that a building code must be granted if the plans and specification are such
that the building work complies with the building code.
The Supreme Court considered that this allocation of powers between central government and local
government was relevant to the interpretation of a territorial authoritys powers to require work on
earthquake-prone buildings. It said that Parliament adopted the 34% of new building standard
benchmark as the standard at which a building is considered sufficiently safe to take it outside the
scope of the power given to territorial authorities to require such strengthening work.
Based on the Supreme Court decision, it would seem that territorial authorities probably do not have the
power to impose requirements that are more stringent than those provided for in the building code, unless
the Building Act or code has an explicit provision to the contrary. This is likely to include requirements for
energy efficiency or environmental standards (such as Homestar) that are more stringent than the building
codes standards.
MBIE has similarly raised concerns about proposals in the PAUP to set building rules that exceed those in
the Building Act, describing them as legally problematicpotentially ultra vires and open to challenge
(2014b, pp. 13 and 15). Given the apparently shaky legal foundations for such provisions, local authorities
should review controls on the design and construction of buildings or dwellings in their District Plans that
exceed standards set under the Building Act, with a view to removing them.
F5.7
District Plan provisions which impose controls on the internal design and construction of
building that are more stringent than standards set under the Building Act may be
unlawful.
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R5.5
Local authorities should review District Plan controls on the design and construction of
buildings or dwellings that exceed standards set under the Building Act, with a view to
removing them.
Moving forward
Developing proportionate and well-targeted regulation is challenging for all levels of government, as the
Commission found in its inquiry into central government Regulatory institutions and practices (NZPC, 2014).
Even so, as noted above, considerable scope exists to remove unduly costly regulation and raise the quality
of underpinning analysis. One example of a leading practice is the steps by Auckland Council over the past
few years to commission more detailed cost-benefit analyses (Box 5.4).
Box 5.4
Leading practice: Auckland Council and cost-benefit analysis
In recent years, Auckland Council has been commissioning benefit-cost studies to assess the impacts of
particular land use rules. Studies completed to date cover the economic impacts of minimum parking
requirements in Auckland (MRCagney, 2012 and 2013) and of minimum apartment sizes and balcony
requirements (MRCagney, 2014).
While Council has not always accepted the policy recommendations in such studies, they provide good
examples of the depth and rigour of analysis that should accompany the introduction of new rules and
which is expected following recent amendments to section 32 of the RMA.
F5.8
Auckland Councils commissioning of detailed benefit-cost studies for particular land

use rules is a good example of the depth and rigour of analysis that should accompany
the introduction of new rules.
However, at a more fundamental level is the question of whether the current legislative frameworks support
efficient and effective land use regulation for housing. A key issue is the lack of any explicit priority given to
housing supply or affordability in the RMA.
Clarifying the importance of housing

The Commissions terms of reference state that this inquiry is not a fundamental review of the Resource
Management Act. As a result, the Commission has been reluctant to discuss issues of the RMAs purpose
and focus. However, the topic of the RMAs impact on the ability of cities to change and provide for housing
was so prominent in the evidence presented to this inquiry, that the Commission concluded that it needed
to address the matter explicitly.
A number of submitters and other commentators argued strongly that the RMA does not give adequate
recognition to the needs of cities and housing:
the urban environment is not adequately recognised in the RMA and the planning system is complex.
(Future Proof, sub. 39, p. 6)
After more than 20 years of the RMA there is no specific recognition given to the importance of the
urban environment and the need to have a planned approach to urban development, infrastructure and
high quality urban design. (Wellington City Council, sub. 21, p. 13)
[T]he Resource Management Act 1991 (RMA 1991) is not well designed for cities ... [and does not give]
sufficient attention to development feasibility, infrastructure affordability or funding when making land
use decisions. (SmartGrowth, sub. 27, p. 6)
Proper recognition of the built environment should be reflected in the RMA, to assist in ensuring more
balanced council policies, practices and requirements. In addition, the RMA needs refinement to
i) properly plan for and facilitate growth in urban areas ii) control the extent of planning prescription in
urban areas to facilitate development and growth efficiently iii) require more cohesive holistic
interpretations. (Property Council New Zealand, sub. 33, p. 4)
If the government is serious about increasing land supply it needs to rethink the current process and
make significant changes to the weighting given to urban growth outcomes relative to other
outcomes such as environmental and heritage outcomes in Part 2 of the RMA. Perhaps there is a place
for specific legislation governing urban planning in the 5-6 growth areas in the country which would not
be dissimilar to the approach taken with the Housing Accords legislation. (Tauranga City Council,
sub. 47, p. 8)
the balance of the RMA is primarily concerned with the adverse impacts of development. Apart from
the amendments currently being hotly contested, almost no recognition is given to the positive
outcomes derived from good urban planning and timely development or investment in infrastructure.
Objectives designed to balance social, economic, environmental and cultural consequences of
infrastructure and land use development create significant conflicts for those developing plans.
(New Zealand Council for Infrastructure Development, sub. 57, p. 8)
the RMA was designed more for natural resource management rather than urban planning where
highly modified landscapes predominate. There should have been and still should be distinguishing and
probably somewhat different sets of principles for urban planning and design. (Gow, 2014, p. 8)
Local Government New Zealand noted that, in comparison with the RMA, the Housing Accords and Special
Housing Areas Act puts a very strong focus on housing:
Under the RMA the need to provide for residential development is not explicit; the purpose of the RMA
is to promote the sustainable management of natural and physical resources...while managing the use,
development, and protection of natural and physical resources in a way, or at a rate, which enables
people and communities to provide for their social, economic, and cultural well-being and for their
health and safety.
This breadth of purpose provides the mandate for a council to provide for the residential needs of a
community. Housing needs are weighed up alongside others. The HA&SHA Act, on the other hand,
has as its purpose to enhance housing affordability by facilitating an increase in land and housing supply
in certain regions or districts; the HA&SHA Act treats housing as essential infrastructure, elevating
housing delivery. The provision of adequate infrastructure has weighting in the Housing Accords and
Special Housing Areas Actand the Minister must not recommend the making of an Order in Council
unless s/he is satisfied that adequate infrastructure exists/is likely to exist to service qualifying
developments, and a resource consent must not be granted unless sufficient and appropriate
infrastructure will be provided to support the qualifying development. (sub. 54, p. 5)
However, other submitters believed that the RMA can meet urban and housing needs:
The Resource Management Act and underlying processes work extremely well. There is certainly no
need for further amendment to that document. Plan changes, consents and development can progress
very quickly if the will is there and the right people are involved. It is the people that make the
difference. (Glenn Broadbent, sub. 58, p. 2)
There is more than sufficient scope within the RMA to achieve co-ordination and quality of outcomes in
the urban land development process. (Tasman District Council, sub. 25, p. 4)
Munro and Beattie (2014) suggested that the problems may rest less with the legislation and more with an
overly narrow interpretation:
Section 5 RMA is of course the apex and most important section of Part 2. It emphasises the need to
enable social, economic and cultural wellbeing, as well as health and safety. In making this message, the
Act discusses the natural and physical environment, not the natural and the biophysical environment as
seems to be read by many. One can further look to the definition of environment in s.3, RMA. It
emphasises people and communities, and physical resources (which includes structures like buildings,
bridges and roads). This inescapably includes the urban environment
If there is a practice problem, it may be that some district plans stray into the dogma that avoiding,
remedying or mitigating an adverse environmental effect is alone sufficient to promote sustainable
management, or is inherently more important than enabling social, economic or cultural wellbeing
(positive effects in simple terms). Such is not in our view a correct interpretation of the RMA. (p. 17)
There is certainly a sense in a number of RMA regulatory plans and related documents that some councils
see the obligation to protect the natural environment as placing constraints on the ability or desirability of
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supplying more land for housing. For example, the Hearings Panel that considered the QLDCs proposal to
include an affordable and community housing policy in its District Plan concluded that in an approach of
zoning considerably more land for housing would quite likely be contrary to Part 2 of the RMA (QLDC, 2008,
p. 31). The Hearings Panel reached this conclusion because
[o]utstanding natural landscapes and features are notably present throughout the District. There is
therefore a great emphasis on managing growth in an appropriate manner as demonstrated in the Plan
and through Council policies. Such considerations would seem to run against the suggestions made by
some submitters that the Council should concentrate on zoning large amounts of land for residential
development. The matter of managing growth can also be considered in the context of Section 7(c).
Sprawling, unconsolidated urban areas would seem inconsistent with the maintenance and
enhancement of amenity values. (QLDC, 2008, p. 19)
Even where land supply is currently an objective in RMA plans, it has no priority or primacy in legislation and
so must be considered alongside other goals (Property Council, sub. 33, pp. 67; Local Government
New Zealand, sub. 54, p. 5). Wellington City Council noted that it had tried to use other, non-RMA strategies
to encourage land supply, but that these important strategies do not have any regulatory effect and often
are ignored or downplayed by the Environment Court as significant policy documents (sub. 21, p. 22).
Given the strongly diverging views about the matter and the impact of multiple regulatory objectives on the
ability of local authorities to supply land for housing, the Government needs to clarify the role and
importance of housing and urban environments in the RMA.
5.6
F5.9
Strongly diverging views exist about the appropriate weighting given in the RMA to
urban growth outcomes and housing relative to other outcomes.
R5.6
The Government should introduce amendments to the RMA to clarify the role and
importance of housing and urban environments.
Streamlined approval processes
The time it takes to gain an approval for development matters for housing affordability. Glaeser and
Gyourko (2003) found that increases in the average length of time taken between an application for rezoning
and the issue of a building permit is strongly correlated with increases in the price of the housing stock.
Evidence presented to both this inquiry and the Housing affordability inquiry emphasised the costs involved
in regulatory delays.
A major source of delay cited by a number of submitters (primarily local authorities) was statutory
consultation requirements and appeal rights. These issues were discussed in more detail in Chapter 4.
However, other sources of delay were either caused by council processes or were within the control of local
authorities. Particular issues cited include:
developers having to coordinate between different council units; and
uncertainty around council requirements.
Coordination costs
Developers sometimes need to coordinate between different council units or processes so as to clarify and
meet their various regulatory or engineering requirements. Contradictory requirements, and inadequate
internal systems to deal with conflicts, add to delays and costs:
Officials still hold up processes. Key issues resulting in delays include: conflicting priorities within council
holding up processes (e.g. parks and maintenance teams not being willing to take on parks, but urban
design teams requiring them puts the developer in an impossible position); lack of infrastructure being
provided; overly complicated reports being required/disproportionate to the impact of the
development; the same information being requested multiple times. (Property Council New Zealand,
sub. 33, pp. 1314)
Delays can be caused by differences in opinion within Councils and between Councils. For example
there can be divergent views internally about road design and stormwater treatment between the urban
design team, the roading team and the maintenance team, disagreement between departments about
the need for and the size of reserves and disagreement between Councils (District and Regional) about
what stormwater infrastructure is appropriate. In such cases developers are forced to wait, sometimes
very long periods (ie, months) while the Council works through the issues. (New Zealand Institute of
Surveyors, sub. 74, p. 11)
Developers felt that there is a lack of alignment between the councils (planning) goals/plans and those
of the related council agencies (parks and reserves, Auckland Transport, urban design, Watercare). This
results in developers trying to mediate disputes over how the development should be designed
between different parts of council. In addition, they held the view that there was little or no
accountability or pressure on Council staff to seek to resolve inter-departmental differences. (Grimes &
Mitchell, 2015, p. 37)
Challenges arise when different planners and council officers attend different meetings and raise
different points, causing a lot of rework. Often the planners attending the pre-app meetings are not
the ones who do resource consent, causing more challenges due to interpretation and lack of
knowledge of previous discussions. (Mike Greer Homes, sub. 48, pp. 34)
Uncertainty about Council requirements

Another source of delay and cost was a lack of clarity or certainty around Council requirements. Subjectivity
and discretion in RMA plans, as well as inadequate skill levels within local authorities, were cited as causes.
Discretion and subjectivity

Subjective language in RMA plans, or scope for staff discretion, can make it difficult to predict the outcomes
sought by councils or the likely response from council officers.
Mike Greer Homes noted that changes to the Christchurch City Plan had moved the pre-application phase
for resource consents from a rules based process to one that now is subjective and allows too much
discretion and is subject to individual interpretation. There is no clear guideline, and is up to the individual
planner (sub. 48, p. 3). Discretion in planning rules also permitted intervention by local authority officers
that appeared intrusive and excessive:
They can get down to some questionable detail, e.g. where we put the water cylinder, colour of doors.
Varies from building lay-out to position, size of garages, colours and type of fences. (Mike Greer Homes,
sub. 48, p. 4)
Design guides were another part of the planning system that created opportunities for differing
interpretations and uncertainty:
Design Guides tend to be filled with emotive, subjective language with no apparent empirical evidence
supporting the design preferences in most casesdifferent interpretation of Design Guides by
individuals even within the same BCA is likely. For example, positive open spaces, visual appeal and
quality of experience mean different things to different people. (Registered Master Builders &
Construction Strategy Group, 2015, pp. 89)
Developers think that the concept of best practice is a continually evolving concept particularly with
urban designers. Engaging with these staff members takes time particularly since they have a limited
concept of the marketability of the changes they propose. (Grimes & Mitchell, 2015, p. 44)
Subjectivity in planning rules could also lead to issues when local authority staff changed:
A further challenge had come about as the time taken to get subdivision projects approved had grown.
BCAs [Building Consent Authorities] often had key staff members leave part way through a subdivision
process. The new person assigned to the project would have dramatically different interpretations of the
Building Code, District Plan, or the subjective question of what good urban design looked like.
(Registered Master Builders & Construction Strategy Group, 2015, p. 12)
131
132
Inadequate skill levels

A number of developers also reported that poor skill levels within local authorities created additional costs
and curtailed innovation (Tainui Group Holdings, sub. 53, p. 2; Property Council New Zealand, Annex 7a to
sub. 33, p. 1; Grimes & Mitchell, 2015, p. 35). The Commission highlighted options for improving the
regulatory capability of local authority staff in its Towards better local regulation report, including:
better communication between central and local government about the outcomes sought from
regulation;
clearer identification and targeting of resource and capability gaps within councils;
stronger obligations on central government developing regulation that will be implemented by local
government to consider the costs of implementation on councils; and
the development of mechanisms for reviewing the regulatory practices of local authorities.
(NZPC, 2013, pp. 13753)
Leading practices
The Commission identified two leading practices in use in New Zealand and elsewhere that respond to the
issues outlined above one-stop shops and electronic planning tools. The Commission also considered
the potential for greater standardisation and liberalisation of New Zealands planning system.
In considering leading practices, it is important to acknowledge the tension between the goals of certainty
and flexibility. Systems based on bright line rules (ie, clearly defined objective standards) provide more
certainty for developers and officials, but may struggle to keep up with changes in technology and market
demand. Regulatory systems that provide for greater discretion (eg, principle- or outcome-based models)
allow for more adaptability, but may lead to doubt about whether or not a particular development is
compliant (and create additional costs in confirming compliance).
In recommending the following practices, the Commission gave more weight to certainty. It did so because
of the very strong concerns expressed by users of the planning system about the impacts of discretion and
because the Commission concluded that, in a number of high-growth areas, the planning systems and
institutions did not have the characteristics required to make principle- or outcome-based regulation work
effectively. As discussed in the Regulatory institutions and practices report, such regulation tends to work
best where outcomes or goals can be easily and objectively measured, or where regulators are wellresourced and capable and there are high degrees of trust between regulators and the regulated industry
(NZPC, 2014, pp. 19495). This did not appear to be consistently the case in the planning system.
One-stop shops
Problems coordinating across different units of local government (or State governments in some
jurisdictions) are common in many countries, and administrative responses often involve the establishment of
one-stop shops to reduce transaction costs for developers (eg, Department for Communities and Local
Government (DCLG), 1998). A number of New Zealand councils have taken similar steps:
Hamilton City Council reported in its submission that it has established the role of Major Development
Case Leader to assist major complex development in the city. This position has no influence on the
consenting process but works to ensure a one-point-of-contact for developers at a senior leadership
level (sub. 70, p. 12).
Auckland Councils Housing Project Office (HPO) brings together representatives from the councils
resource consent, planning and stormwater units, as well as Auckland Transport and Watercare Services
Ltd. The aim is to provide a customer-centric one-stop shop for development proposals that qualify
under the Housing Accord, and ensure the customer has one main point of contact within Council and
the CCOs (sub. 71, p. 5).
Western Bay of Plenty District Council encourages developers to meet with staff before committing to a
particular proposal:
At such a meeting we have all the appropriate staff present including utilities, roading, reserves, policy
planner and the consenting planner. At such a meeting we are able to better understand what the
applicant wants to achieve, and to clarify what our requirements are likely to be; flexibility is applied to
meet agreed outcomes. It provides a no surprises approach, there is frequently more than one meeting,
and the applicant is not charged for Council time. It leads to a high level of certainty and much faster
processing of the application when it is lodged. (sub. 36, p. 4)
Wellington City Council is introducing a Housing Accord Project team to provide a fully integrated,
case-managed process for qualifying developments consent applications (Wellington City Council,
n.d. (b)).
The CCC established Rebuild Central following the 2010 and 2011 earthquakes to provide specialist
assistance to property owners, business owners and investors interested in redevelopment in or
relocation to the central city (CCC, n.d.). The Rebuild team includes urban regeneration, planning,
design and building consent experts and has links to other relevant specialists and disciplines. Once a
project begins to take shape, a case manager is appointed to steer it through the relevant council and
statutory processes.
Such practices can help clarify expectations and reduce transaction costs, and a number of developers spoke
positively about them, especially Auckland Councils HPO (see, for example, MBIE, 2014d, pp. 12; Property
Council New Zealand, sub. 33, p. 16).
F5.10
Arrangements to bring all parts of council with a potential impact on a development

project together and provide a one-stop shop for developers can help reduce
transaction costs and unnecessary delays.
While speaking favourably about the HPO, developers also noted that co-locating staff did not always
resolve the problem of differing organisational objectives between the Council and Council controlled
organisations (CCOs). Although the HPO was viewed as a positive step towards integrated decisions on
developments, developers felt
it needs more power, coupled with cohesive objectives between silos, to effect real change and decide
the best path to achieve the best quality outcome. Currently, the final desired outcome is put at risk,
and given insufficient consideration, by trying to be everything to everyone. (Property Council
New Zealand, Annex 10 to sub. 33, p. 3)
The Property Council and Development Advisory Services questioned whether Auckland Transport and
Watercare had the same priorities as Auckland Council in terms of achieving higher-density development,
and developers argued that the HPO should be given more authority to resolve specific development
trade-offs within the wider Council family (Property Council New Zealand, Annex 10 to sub. 33,
Development Advisory Services, sub. 74, p. 4; MBIE, 2014d, p. 1). The issue of CCO governance and
coordination with wider Council objectives is addressed in Chapter 8.
Electronic application and planning tools

Electronic development assessment processes can reduce delays and costs for developers, while also
improving consistency, accountability, information collection and benchmarking (APC, 2011a, p. 276). The
introduction of electronic planning tools has been a focus of reform in Australia since 2008 (LGPMC, 2009,
p. 16) and tools have been progressively rolled out in various degrees in the States and Territories. Victoria
and the Northern Territory (NT) are the most advanced, with 70% of development approval applications in
Victoria and 100% in NT lodged electronically (Residential Development Council / Property Council of
Australia, 2012, pp. 5253). The types of electronic tools in use in Australia are outlined in Box 5.5.
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134
Box 5.5
Electronic planning tools in Australia
Across Australia
At a high level, there are seven main types of tools currently in use:
Development Assessment tracking applicants can view the status of their proposal as it moves
through a councils internal assessment process.
Smart forms of electronic submission of information users are guided through a checklist
specific to their proposed development including reports and attachments.
Certified planning information users can obtain (including purchase) a copy of the relevant
planning information for their site from a website instantly.
Filtered planning controls planning controls are drawn out of documents and packaged for
specific proposals, negating the need to check multiple documents.
On-line maps users can search for their site and view layers of information (for example, zoning),
environmental sensitive areas and heritage items.
Electronic development activity gathering development activity data is collated.
Centralisation of planning information jurisdictional one-stop shops for planning

infrastructure. (APC, 2012, p. 298)
New South Wales

The NSW Environment and Planning Department has a number of e-planning tools in place, including:
Interactive Buildings: a free online [to] help people to understand and interpret development
standards for common building works that require no further planning approvals:
To check planning requirements for a property, users simply select the type of building they want
to investigate and a three dimensional diagram of a residential, commercial or industrial property
appears on their screen. A menu displays possible development options such as alterations,
outdoor/garden items, fences and retaining walls and signs. When users select an option, the tool
zooms in to the required feature on the property and a pop-up box appears showing the planning
requirements in plain English. (NSWDPE, 2014a, p. 1)
Planning Viewer: a free online tool that provides a visual way to show the planning rules that
apply for properties across NSW:
Users can do a basic text-based search by either typing in an address or place, or an interactive
search directly on the map. You can also use land titles information to do an advanced search.
Once a property is found, the user can view a summary of the relevant planning rules or select
different map layers. (NSWDPE, 2014b, p. 1)
The availability of electronic planning tools in New Zealand varied between councils. The 10 territorial
authorities that the Commission is focusing on had their District Plans and associated maps available online,
and had downloadable application forms for resource consents and plan changes. Eight of the ten
authorities had searchable GIS-based maps, and some (eg, Auckland Council) permitted searchers to visually
layer different planning rules on particular areas (eg, additional height restrictions or heritage overlays) and
view the location of significant infrastructure assets. Auckland Councils website also allowed searchers to
find out which PAUP zones and/or overlays applied to specific properties.
Other functions were more limited in their reach:
QLDCs eDocs service allows online applications for resource consents, and consent decisions are sent
electronically. QLDC intends to add the ability for people to track the progress of their consent
applications within the next 1218 months.
CCCs Online Services allows people to apply online for a resource consent, check their documents and
upload further information, but not to track the progress of their application. This functionality should be
added within the next couple of years.
Auckland Councils website allowed online booking of pre-application meetings and the uploading of
related documents.
The remaining councils either required hard copy resource consent applications or allowed application
by email.
F5.11
Opportunities exist in New Zealand to reduce costs and delays by making greater use
of electronic planning tools.
Greater standardisation
A third approach taken to speed up approvals and reduce uncertainty is to standardise and ease regulatory
requirements around some forms of residential development. Such approaches are prominent in Australian
States and Territories, where State-wide residential codes and planning polices set common standards around
particular types of development (eg, standalone residential dwellings and, in some States, multi-unit
developments).
This standardisation enables fast-tracked assessment and approval of lower-risk development types (code
assessment). The Australian Productivity Commission, in a 2012 examination of the impact of development
assessment reform, estimated the full introduction of code assessment could create compliance cost savings
of A$220 million a year, A$45.3m of which would accrue to residential development (APC, 2012, p. 307).
Some degree of standardisation in land use rules is already occurring, as a result of local government
reforms. The establishment of the Auckland Council and development of the PAUP means that the 99
residential zones in place across the region prior to amalgamation will be replaced by 6 (subject to any
recommendation from the Independent Hearings Panel). The Housing Accords and Special Housing Areas
Act has also albeit temporarily introduced common and streamlined approval processes for particular
types of residential developments in declared areas.
However, clear scope exists for further harmonisation and standardisation within the New Zealand planning
system, particularly around commonly used terms in District Plans. This was noted in the Governments 2013
discussion document on proposed reforms to the RMA:
In the Wairarapa District Plan: Ground level the natural level of the ground; or the finished ground
level approved at the time of subdivision or development.
In the Horowhenua District Plan: Ground level means the natural level of the ground; or the finished
level of the ground when all engineering and development works that are required by council in the
course of any subdivision or development have been completed.
In the Lower Hutt District Plan: For the purposes of calculating maximum height, ground level shall
be deemed to be the natural level of the ground or the finished level of the ground as a result of an
approved subdivision, and shall not include earthworks which have resulted or will result from work
undertaken as part of the construction of the building or site. (MfE, 2013b, p. 19)
Similarly, a 2008 report prepared for the Ministry for the Environment reduced 460 planning terms from
district plans and other sources to 43 standard definitions (MfE, 2008). Recent announcements by the
Minister for the Environment on proposed reforms to the RMA suggest that the government intends to
introduce greater standardisation of planning terms and definitions (Minister for the Environment, 2015,
p. 9).
135
136
Potential may also exist to further standardise District Plan rules around the provision of telecommunications,
gas and electricity infrastructure in developments and subdivisions, given that these services are often
delivered by organisations that cross territorial authority borders and have common technological and safety
requirements. Vector and Chorus highlighted the costs of submitting on multiple district and regional plans,
and managing variations in rule for projects that cross borders (Vector, sub. 11, p. 3; Chorus, sub. 72, p. 3).
Two National Policy Statements and two NES currently partially cover this territory (Table 5.2). The Ministry
for the Environment is also consulting on amendments to the telecommunications facilities NES, which
would add further permitted activities, including the deployment cables within road reserves (subject to
specific conditions) and the installation of larger utility structures (eg, power poles) and higher antennae
(MfE, 2015). Currently, no national RMA guidance exists for the installation or maintenance of gas
infrastructure.
Table 5.2
RMA legislative tools that apply to electricity or telecommunications
RMA legislative tool
Covers
National Policy
Statement on Electricity
Transmission
Provides guidance to local authorities to ensure that, in providing for the transmission of
electricity within a region or district and in managing the effects of the transmission
network on the environment, the operational and long-term development requirements
of the network are appropriately considered and its status as a linear cross-boundary
network is fully recognised.
National Policy
Statement on Renewal
Electricity Generation
Gives guidance to local authorities about how RMA planning documents should deal with
renewable electricity generation, including the construction, operation and maintenance
of structures associated with renewable electricity generation, small and community-scale
renewable generation activities, systems to convey electricity to the distribution network
and/or the national grid, and electricity storage technologies associated with renewable
electricity storage.
Standard on Electricity
Transmission Activities
Specifies which transmission activities are permitted, subject to conditions to control the
environmental effects. The standards also specify consent requirements for activities that
fail to meet the permitted activity conditions. Permitted activities include operating
existing transmission lines, maintaining conductors (wires) and adding a limited number
of conductors provided limits on electric and magnetic fields are not exceeded, signs on
transmission line support structures (within specified size limits), and strengthening,
upgrading and replacing support structures and foundations.
Standard on
Telecommunication
Facilities
Specifies which telecommunication activities are permitted, providing they meet specific
terms and conditions. Permitted activities are radiofrequency fields generated by all
telecommunication antennas (such as cellphone towers), the erection of equipment
cabinets at the roadside, the addition to existing roadside structures (such as light poles)
of antennas used for wireless internet connections and mobile phones, and noise levels
from roadside cabinets, up to specified noise limits.
Q5.2
What would be the costs and benefits of nationally standardising land use rules around
the provision of telecommunications, gas and electricity infrastructure across all District
Plans?
However, it is not clear to the Commission that there would be a net benefit in further standardisation of
land use regulation, along Australian lines. The Australian system of having consistent and common rules for
specific types of residential developments works in part because State and Territory governments also set
standard zones and overlays, which local authorities must use in preparing their plans. By comparison, local
authorities in New Zealand set their own zones.
New Zealands highly devolved system has a cost. A 2010 Ministry for the Environment report noted:
Most district plans have at least one or more residential zones. However, a quick analysis of
230 residential zones contained in RMA plans suggests that no two are exactly alike even when many
have similar names and broadly similar purposes, the rules and standards that apply vary. (MfE, 2010a,
p. 16)
Such variations are likely to be costly for developers and organisations that work across local authority
borders. However, costs are involved with moving to a system of nationally consistent zones. Moving to such
a system would effectively require full plan reviews, creating considerable costs and upheaval for local
authorities and uncertainty for developers. Based on the average cost of $1.9 million to produce a firstgeneration District Plan (MfE, 2010a, p. 18), the direct costs of such a move could exceed $127 million.
Further, it is not certain that national consistency would necessarily deliver less complexity and more
efficiency in the planning system. A review of the introduction of the Victorian Planning Provisions, which
introduced an unprecedented amount and type of standardization into Victorian planning schemes and
removed a strong orientation towards local control, concluded that the reforms had failed to deliver smaller
and less complex planning documents, greater certainty and more efficiency (Buxton, Goodman &
Budge, 2003). Indeed, Buxton, Goodman and Budge found that plans were longer and more complex after
the reforms, and that processing times for development approvals in most councils increased (2003, pp. xii
xvii).
Finally, greater standardisation may not deliver a greater supply of development capacity. The introduction
of three new residential zones in Melbourne by the State government in 2013 saw several local authorities
apply the most restrictive zone (Neighbourhood Residential Zone) to large areas of land. The first council to
apply the new zones (Glen Eira) applied the Neighbourhood Residential Zone to 78% of residential land.
Other inner and middle ring Melbourne suburbs applied similarly restrictive zoning (Kelly and Doneghan,
2015, p. 133). Planners and developers expressed concerns that these decisions would reduce capacity, lead
to inefficient land use, and see dwelling growth pushed to the CBD and outer fringes (Property Council of
Australia, 2013; Derkley, 2014).
F5.12
The Commission is not convinced that the benefits of nationally consistent land use
rules for specific types of residential development outweigh the costs.
Q5.3
Does introducing nationally consistent land use rules or specific types of residential
development have other possible benefits that the Commission should consider? What
types of land use rules should be made nationally-consistent? Why?
Further liberalisation
Another means of reducing regulatory costs is to remove the requirement for local authority approval or
reduce the scope for discretion. This is one of the other goals of the Australian development assessment
reforms, creating clear tracks into which simple and low-risk proposals are either exempted from
assessment or assessed against objective measures.
In the New Zealand context, this would mean:
moving a larger proportion of residential land use activities into the permitted or restricted
discretionary classifications; and
more tightly defining District Plan requirements on aspects that manage genuine externalities. For
example, Western Bay of Plenty District Council argued that the key controls that should be applied to
conventional dwellings were height, daylight, yards, fence heights, and coverage. (sub. 37, p. 4)
Little information exists on the proportion of land use activities that are permitted under existing District
Plans. Information collected on the performance of the planning system focuses on the issue of resource
consents (which are not required for permitted activities). The Ministry for the Environments 2012/13
137
138
survey of local authorities did detect a shift in resource consent activity away from the more restrictive
discretionary status, but it is unclear whether this is driven by changes in District Plan policies or by the
nature of developments (Figure 5.2)
Figure 5.2
Percentage of territorial authority consent applications, by activity type
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Controlled
Restricted
discretionary
2012/13
Source:
Discretionary
2010/11
Non-complying
Other
2007/8
MfE, 2014.
Even so, the experience of the Queenstown Lakes District Plan review suggests that scope exists for further
liberalisation of residential land use requirements in current RMA Plans (Box 5.6).
Box 5.6
Leading practice: Queenstown Lakes District Plan review
Queenstown Lakes District Council is currently reviewing its District Plan, with a view to providing
greater accessibility, focus and flexibility. As noted earlier, one outcome of this review is a proposal to
remove minimum private open space requirements in the citys high-density residential zone. Other
proposals include:
easing development controls in the high-density zone to permit 34 storey development;
replacing a units per square metre approach to zoning (eg, minimum lot sizes) in a new mediumdensity zone with a floor area ratio that could allow a wider range of development opportunities
while protecting amenity; and
moving a number of development activities from discretionary to permitted or restricted

discretionary status so as reduce the need for notifications and to provide greater certainty over
outcomes.
Source:
Queenstown Lakes District Council, sub. 54, p. 4; New Zealand Institute of Surveyors, sub. 74, p. 6.
As noted above, a standardised or centrally driven approach to liberalising land use rules may be costly and
might not necessarily reduce complexity in the planning system. However, other institutional reforms
proposed in this report such as clarifying the role of housing and urban environments in the RMA (this
chapter) and strengthening the role of central government in the planning system (Chapters 9 and 10)
should create stronger incentives on councils to free up the use of land for housing.
5.7
F5.13
Little information is available on the proportion of land-use activities that are

permitted under existing District Plans. However, the experience of the Queenstown
Lakes District Plan review suggests that scope exists for further liberalisation of
residential land-use requirements in current RMA Plans.
R5.7
In reviewing their District Plans, local authorities should move more residential land-use
activities into permitted or restricted discretionary status.
Q5.4
Would national direction on what residential land-use activities should be permitted in

RMA Plans provide net benefits? What sorts of activities should such a direction focus
on?
Inclusionary housing policies
Inclusionary housing policies cover a wide range of tools and approaches but, broadly defined, refer to
requirements or incentives in the planning process to provide affordable or lower-cost housing as part of a
development. They are common in a number of other jurisdictions similar to New Zealand. For example:
Section 106 of the English Town and Country Planning Act makes the provision of affordable housing a
material consideration for the provision of planning approval. Under this provision, local authorities
that had identified a need for social or low-cost housing in their area can require that a proportion of
housing on a development is affordable (Whitehead, 2007, p. 33). The proportions sought vary between
local authorities and are subject to negotiation between councils and developers. The affordable
housing provided is then transferred to independent social landlords (Austin, Gurran & Whitehead, 2014,
p. 463).
Inclusionary housing policies have been a feature of US planning since the 1970s (Murphy & Rehm, 2013,
p. 7). US governments apply a range of policies, which have been described by Gurran et al. as falling
into two broad camps: efforts by state and federal governments to reduce local planning barriers to
denser and affordable housing, and voluntary or mandatory developer contributions for affordable
housing (Gurran et al., 2008, p. 65).
South Australia introduced a requirement in 2005 that 15% of all new dwellings in significant
development projects are affordable (defined in terms of a price point for the housing, and income
levels for the purchasers/renters). The policy was initially implemented through government land
releases on the urban fringe, but is now being applied to urban redevelopment projects (Davison et al.,
2012, p. 48).
A number of submitters and other stakeholders argued that New Zealands planning and development
system needs to make greater use of inclusionary housing policies (Hutt City Council, sub. 17, p. 3; Greater
Christchurch Urban Development Strategy, sub. 18, p. 7; SmartGrowth, sub. 27, p. 8; Community Housing
Aotearoa, sub. 34, p. 1; Future Proof, sub. 39, p. 5; New Zealand Housing Foundation, sub. 69, pp. 1112;
Registered Master Builders & Construction Strategy Group, 2015, pp. 1213).
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140
New Zealand practice

Provisions in RMA plans
Only two territorial authorities within the scope of this inquiry had inclusionary housing policies in their
current or proposed RMA plans. The PAUP seeks to improve the affordability of dwellings for households
on low to moderate incomes by:
encouraging residential development to provide a range of dwelling types and sizes that help meet the
housing needs of households on low to moderate incomes, including social housing and lower cost,
market rate housing; and
requiring new large-scale residential development within the RUB [Rural-Urban Boundary] and
encouraging all other development to provide a proportion of dwellings that are affordable for the
intermediate housing market (Auckland Council, 2013c, B2.4).
The Queenstown Lakes District Plan includes an objective of ensuring access to Community Housing or the
provision of a range of Residential Activity that contributes to housing affordability in the District (QLDC,
2012a, p. 4-59). This objective was only made operative in 2013, following appeals from developers to the
Environment Court and the High Court and changes made to the proposed District Plan policy through
consent orders.
Housing Accords
At a national level, the Housing Accords and Special Housing Areas (HASHA) Act permits the Minister and local
authorities to agree Housing Accords, through which both parties agree to work together across a range of
housing issues, according to the matters that they may identify as relevant to improving housing supply and
affordability (s. 11 (2)(a)). There is no statutory definition of affordability in the Act, and the government does
not appear to have a policy definition.
The six Housing Accords signed to date take different approaches to the matter of affordable housing. Of
the six, the Christchurch Accord has the strongest focus on affordability issues and actions (Table 5.3).
Table 5.3
Affordable housing provisions in Housing Accords agreed to date
Housing Accord
with the New
Zealand
Government
Auckland Council
Affordable housing provisions
Increase housing supply
All developments that qualify for the accelerating approvals process are required to give
consideration to the provision of affordable housing and/or first home buyer purchase.
This may be included in conditions of consent.
Tauranga City
Council
To deliver smaller dwellings at a more affordable price point.
Maintain sufficient supply of land to ensure a healthy degree of competitive pressure

amongst developers.
Western Bay of
Plenty District
Council
Council and Government additionally agree to coordinate their efforts on other issues
impacting the provision of affordable housing.
Wellington City
Council
Increase housing supply and speed of development.
Ensure housing developments provide a mix of house types and include more compact
affordable homes to be sold at different price points.
Christchurch City
Council
Develop, or facilitate development by private developers, [of] medium density affordable

housing.
Seek private sector partners to develop innovative mixed tenure housing on Governmentowned land on Carrs Road.
Housing Accord
with the New
Zealand
Government
Queenstown Lakes
District Council
Source:
Affordable housing provisions
Identify surplus Crown and Council owned land that may be appropriate for residential
development.
Establish a housing entity or entities capable of meeting the requirements of being

registered as a Community Housing Provider, to redevelop Council owned social housing
assets and to develop social and/or affordable housing to better meet [the] future housing
needs of the city.
Monitor the progress of the housing related actions in the Land Use Recovery Plan, and
take action to address any issues that are impeding the supply and affordability of
residential development.
Encourage developers to prepare their land and build houses more quickly than has been
the case over the last three years.
Ensure housing developments provide a mix of house types and include more compact
affordable homes which can be sold at different price points.
Auckland Council / New Zealand Government, 2013; Tauranga City Council / New Zealand Government, 2014; Western Bay of
Plenty District Council / New Zealand Government, 2014; Wellington City Council / New Zealand Government, 2014; CCC /
New Zealand Government, 2014; QLDC / New Zealand Government, 2014.
The Christchurch Accord is also unique in having an explicit definition of affordability in its aspirational
targets:
[a] 10% reduction in the number of households at the 40th percentile of household income paying more
than 30% of household income in housing, and
[a]n increase in the proportion of new build consents with a value of less than $250 000 (CCC /
New Zealand Government, 2014, p. 7).

Aucklands Special Housing Areas (SHA) have detailed affordability criteria for qualifying developments. In
Auckland SHAs, developments with more than 15 dwellings must ensure that:
10% of the total dwellings are relative affordable (defined as sold for no more than 75 per cent of the
Auckland region median house price); or
5% are retained affordable (defined as sold at a price where the monthly mortgage payments do
not exceed 30 per cent of the Auckland median household income). 32
Purchaser eligibility criteria exist for the affordable houses within Auckland SHAs. Purchasers of relative
affordable dwellings must have a gross household income that does not exceed 120% of the Auckland
regional median, be natural persons, first-home buyers and intend to own and occupy the dwellings for at
least three years. For retained affordable dwellings, the purchasers must be registered community housing
providers or Housing New Zealand Corporation.
Details of other SHAs are either still being worked through between local authorities and the government, or
will be negotiated with developers. A February 2015 press release from the Western Bay of Plenty District
Council indicated that, for the Omokoroa SHA affordability may be determined in terms of the percentage of
total dwellings at or below specified price points ie, 25% of dwellings between $350 000 and $400 000, and
50% above $400 000 (Western Bay of Plenty District Council, 2015).
Tauranga City Councils Housing Accord policy states that the Council will negotiate affordable housing
outcomes for each special housing area and/or qualifying development on an individual basis (Tauranga
32
Developers can also combine these two approaches.
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142
City Council, 2014b, p. 4). Negotiations will cover dwelling sizes, section sizes, the general price of dwellings
in relation to Tauranga medians, the nature of any covenants, purchaser types, the potential to target
specific housing needs, the spread and mix of housing types, and the ability to secure affordability outcomes
through an appropriate, legal mechanism (ibid, pp. 45).
Inclusionary housing policies as a second best approach?

Some commentators have characterised inclusionary housing policies as a form of compensation for the
negative impacts of the planning system:
[P]lanning gain is a way of compensating the poor who disproportionately bear the costs of planning.
Planning limits the supply of new homes, especially in tightly constrained areas, but does not limit
demandAs a consequence, people go unhoused, occupy smaller homes or commute longer
distances from areas with less stringent planning constraints. In the longer run the planning system
adjusts to housing shortages by releasing more land, but in the short run, the poor, in effect, pay for the
wider benefits society enjoys from its planning policies, while landowners of the limited development
land that is released enjoy substantial windfall profits. (Crook & Monk, 2011, p. 1012)
The negative impacts of planning in particular the councils urban containment policy - appear to have been a
key motivation for introducing affordable housing policies in Queenstown (Infinity Investment Group Holdings
Ltd et al. v Queenstown Lakes District Council, 2010).
If the planning system and its impacts on the supply of land for housing are the proximate causes of
declining affordability, then the logical response is to ease the planning systems restrictiveness. This
approach was recommended by the Commission in the Housing affordability inquiry, and the Commission
continues to see this as the priority. The risk with inclusionary housing policies is that they can draw the focus
of local authorities away from ensuring that the overall planning system is as efficient and enabling as
possible.
F5.14
Inclusionary housing policies are sometimes characterised as compensation for the

negative impacts on the poor of the planning system. If the planning system is the
proximate cause of declining affordability, planning system reform should be the
priority response.
Even so, it is likely that, even with reform, some planning systems will continue to impose a degree of
restrictiveness on the supply of housing, or may not be able to resolve longstanding supply deficits quickly.
The effects of these gaps will be felt most at the cheaper end of the market and by lower-income people
(Chapter 2). As such, inclusionary housing policies can be thought of as a second best approach to the
issues of housing affordability. The challenge is to design such policies in a manner that minimises
undesirable side effects or efficiency losses.
F5.15
Even with reform, some planning systems may continue to impose a degree of
restriction on the supply of housing or struggle to resolve longstanding supply deficits
quickly. Inclusionary housing policies may therefore be a second best response to
housing affordability issues in these areas.
Minimising undesirable side effects or efficiency losses

Inclusionary housing policies can have a number of potential negative impacts, including:
uncertainty and delays to development approvals;
higher prices for non-affordable housing; and
administrative costs to enforce the policies.
Uncertainty and delays

Inclusionary housing policies that involve a high degree of discretion on the part of local authorities or
require negotiation between councils and developers create the risk of uncertainty and delays to
development approvals. The English system of Section 106 agreements, which involves negotiations
between councils and developers to determine the exact form and scale of the affordable housing
contribution was criticised in a review commissioned by the UK Deputy Prime Minister and Chancellor of the
Exchequer for its lack of transparency, potential for abuse and length of the process, which could take many
months, occasionally years, and are costly in both local authority and developer time and resources (Barker,
2004b, p. 67). 33 The review recommended scaling back the scope of the agreements, and providing an
alternative of local authorities levying a charge on developments. Davison et al. also emphasise the
importance of certainty in affordable housing requirements for developers (2012, p. 108).
Given the focus of this inquirys Terms of Reference on improving the speed and efficiency of the housing
supply chain, the Commission considers that inclusionary housing policies which involve a high degree of
discretion by local authorities or negotiations should be avoided.
F5.16
Inclusionary housing policies that require negotiations between councils and

developers, or high degrees of discretion on the part of local authorities, are likely to
create uncertainty and delays.
Higher prices for non-affordable housing

Inclusionary housing policies can increase the price of non-affordable housing, although the likelihood and
size of the effect depends on the nature of the policy, the state of the property market and price elasticities.
Knapp, Bento and Lowe (2008) reviewed the impacts of inclusionary zoning schemes on the California
housing market and found that while the prices of lower cost housing fell by about 0.8%, prices for the more
expensive properties increased by about 5%. Another assessment of inclusionary zoning in San Francisco
and Boston using regression analyses suggest that IZ [inclusionary zoning] does contribute to increased
sales prices of existing single-family homes during rising regional markets, and may depress local housing
prices when regional prices decline (Schuetz, Meltzer & Been, 2011, p. 321). In its interim guidance on the
PAUP, the Independent Hearings Panel expressed concerns that the proposed form of retained affordable
housing could further reduce housing affordability by increasing the cost of the general supply of housing
(Auckland Unitary Plan Independent Hearings Panel, 2015, p. 2).
Such results are not surprising, in that some types of inclusionary housing policies effectively require
developers to produce lower-price units than they would have without regulation. To maintain their
expected profit margins, developers may seek to increase the price of non-regulated dwellings, perhaps by
improving their specifications (Chapter 2).
Administrative costs
Depending on their form, inclusionary housing policies can create high administrative costs, especially
around enforcement. Examples include policies that require plan-mandated affordable housing to be
provided to specified residents or organisations or that require ongoing monitoring to ensure that the
housing is not sold on to the general market.
Fitting the policy to the context

Whether or not a particular inclusionary housing policy is successful depends to a large extent on the nature
of the institutional framework and the existence of other supporting policy tools.
The type of land-use regulatory system in place and underlying social assumptions have an impact on the
form of inclusionary housing policy that can or should be adopted. In particular, countries with zone-based
planning regimes and stronger property rights appear to best suit incentive-based policies (such as density
A later review of land use planning by the same economist, found that 45% of section 106 negotiations took longer than six months to complete
(Barker, 2006b, p. 122).
33
143
144
bonuses, which allow developers to build more densely than general zoning rules require in return for more
affordable housing). Gurran and Whiteheads comparison of British and Australian affordable housing
policies concluded that Australias tradition of private sector housing provisionand ambivalence towards
urban regulation, helps to explain why planning mechanisms for affordable housing never really gained
traction (2011, p. 1210). They also commented that the
underlying land use zoning approach [in Australia] has limited scope for planning authorities to secure
additional community benefits (such as affordable housing) through the development assessment
process. (ibid)
In another analysis of inclusionary housing policies, Whitehead (2007) contrasted the English approach with
those of other Commonwealth countries:
Other countries with fundamentally similar planning legislation, such as Australia and New Zealand, over
the years tend to have reallocated stronger property rights to developers. As a result, greater incentives
have to be provided (such as trading higher densities for affordable housing provision) in order to
ensure land and in some instances finance, is made available to meet affordable housing objectives.
(p. 39)
Davison et al. similarly noted that the

[e]vidence on whether mandatory, fixed affordable housing requirements are more effective than
incentive based and negotiated models is mixed, with mandatory negotiated approaches appearing to
contribute positively to overall housing supply as well as affordable homes in the UKbut incentive
based schemes coinciding with increased housing production in parts of the US. (2012, p. 25)
This suggests that incentive-based inclusionary housing policies are more likely to fit with the New Zealand
planning and institutional environment. Such housing policies also avoid the disruption, uncertainty and
potential loss of development that is likely to accompany the introduction of inclusionary housing policies
without additional liberalisation of planning rules to already-zoned land, where the impact of zoning rules has
been priced into the land.
F5.17
Incentive-based inclusionary housing policies are more likely to fit with New Zealands
zone-based planning system and (relatively) strong property rights.
Inclusionary housing policies also appear to work best when they are part of a wider suite of tools. Indeed,
Whitehead (2007) concluded that while land use regulation for affordable housing
may be one valuable tool in a governments armoury, the land use planning system alone is very unlikely
to be a primary source of additional affordable housinglarge-scale government financial support is
also necessary if affordable housing provision targets are to be achieved. (p. 41)
A review by the Australian Housing and Urban Research Institute into planning provisions for affordable
housing similarly found that
[p]lanning mechanisms alone (either mandatory or voluntary) are generally insufficient to secure a
significant supply of affordable housing in high value urban renewal or infill contexts without additional
resources in the form of land dedication or government funding. (2014, p. 3)
The Commission has already discussed the role of public land as a key input to land supply strategies (Chapter
4). It is also a critical input to inclusionary housing policies.
Another possible option is to require payment, or the provision of land, for affordable housing purposes
when land is rezoned to a higher-value use. Such approaches, if designed well, are less likely to create
uncertainty, bid up the price of non-targeted houses or involve significant administrative costs. However,
such betterment levies present a range of political challenges, as discussed in more detail in Chapter 10.
F5.18
Local authority polices on inclusionary housing are likely to struggle without a range of
other supporting polices, most of which require support from central government.
5.8
Conclusion
Land use regulations can play an important part in supporting the effective and efficient functioning of cities.
However, like other forms of regulation, they need to be designed and implemented with care. Evidence
presented to the Commission suggests that a number of particular types of regulation impose undue costs
and have a harmful effect on the supply, choice and affordability of housing. These regulations should be
reviewed and removed. Clarifying the place of housing and urban environments in the RMA, reducing the
scope for discretion in local authority land use rules, and making greater use of electronic technology would
also help to give greater focus on housing objectives in District Plans and reduce delays in gaining consents.
Inclusionary housing policies are commonly used in the United States, the United Kingdom and Australia,
but are not very prominent in New Zealand. They can be thought of as a second best policy in cases where
reforms to planning systems fail to provide sufficient responsiveness or do not overcome longstanding
housing deficits. Inclusionary housing policies need to be designed to fit the wider planning system, and are
most likely to succeed where they are part of a wider suite of tools, most of which require support from
central government.
145
146
Planning and delivering infrastructure
Key points
Infrastructure is a key part of the housing supply chain and accounts for a significant share of the
total cost of new dwellings. Infrastructure has the potential to be a bottleneck in the supply of land
for housing if its delivery is poorly timed, or poorly located.
Due to the large upfront cost of new infrastructure, councils tightly control the supply of
infrastructure needed to support urban growth. This is a prudent approach from the perspective of
managing costs and risks. But an overly restrictive approach to infrastructure supply can constrain
the supply of shovel-ready land and exacerbate housing affordability issues.
A key issue is how councils can optimise the provision of shovel-ready land in such a way that
creates some competitive tension in the market, while not over-capitalising in the construction of
costly infrastructure.
Staged construction and other innovative approaches that lower the up-front costs and allow
services to be scaled up as demand increases can help to overcome the difficulties of investing in
infrastructure to support growth. Developer-led infrastructure also has potential to deliver a swifter
and lower-cost supply of infrastructure.
Another good practice is for councils to work backwards through the land supply chain to identify
measures that need to be taken, including the provision of infrastructure, to ensure that there are
no impediments to a responsive supply of dwellings.
Improving the supply of infrastructure for housing is not just about rolling out new infrastructure.
Effective use of existing assets is also an important part of the equation. Councils should unlock
land supply by enabling growth in areas where there is spare capacity within existing infrastructure
networks.
Robust information about the current use, location and condition of existing infrastructure assets is
a fundamental prerequisite for the effective planning, funding and delivery of urban infrastructure.
User charges, such as volumetric water pricing and road tolling, can also contribute to an improved
supply of land if it increases the number of dwellings that existing infrastructure assets can support.
Councils should make more use of these charges, and the Government should remove blockages
to their use by removing legislative bans on tolls for existing roads or congestion charges.
Because developers are required to build some infrastructure but councils are responsible for its
maintenance, infrastructure engineering standards can be a source of tension between councils and
developers. Standards should be evidence-based, and decisions to modify standards should avoid
disrupting developments that are already in progress. There may be a case for greater consistency
of infrastructure standards.
The Commission is interested in further evidence regarding whether the process by which land is
designated for infrastructure could be improved, and whether infrastructure that is provided by
private utility companies is sufficiently integrated into land development processes.
6.1
Introduction
One of the main challenges associated with land supply for housing is planning and delivering an efficient
supply of infrastructure to support urban growth. Councils can zone a vast supply of land for residential
development, but unless that land is serviced with appropriate infrastructure it does nothing to meaningfully
Chapter 6 | Planning and delivering infrastructure
increase the supply of land for housing. Tauranga City Council notes that there is no point in just increasing
the amount of land available for housing development as this will not achieve housing affordability
objectives unless land can actually be developed i.e. transport and other infrastructure services are
available (sub. 47, p. 7).
The costs associated with rolling out new infrastructure to support urban growth are significant. Maintaining
infrastructure and upgrading it to ensure it remains fit for purpose also accounts for a major share of
councils time and resources. More effective delivery of new infrastructure and better management of
existing assets are both important for improving the supply of serviced land for housing.
This chapter examines the processes by which councils plan and deliver infrastructure to support urban
growth. It begins by setting out the typical infrastructure requirements needed to support urban growth and
the role that infrastructure plays in the housing supply chain. The chapter then discusses the various planning
requirements that councils undertake under the Local Government Act 2002 (LGA) and the Land Transport
Management Act 2003 (LTMA). It then examines some of the challenges that councils face in planning
infrastructure to support growth, managing existing infrastructure, and constructing new assets. A number of
good practices are identified along with draft recommendations for improvement.
Chapter 7 examines how infrastructure is paid for, and Chapter 8 examines issues with the governance of
transport and water infrastructure.
6.2
The role of infrastructure in land supply and dwelling cost
The 2011 National Infrastructure Plan defines infrastructure as the fixed, long-lived structures that facilitate
the production of goods and services and underpin many aspects of quality of life (National Infrastructure
Unit, p. 1). The productivity of New Zealands main urban areas is dependent on effective infrastructure
systems:
cities would be inconceivable without infrastructure systems. Streets, bridges, harbour facilities,
transit systems, water and sewer systems systems of electrical power generation and distribution, and
communications systems are what make safe, sanitary, and productive urban living possible. (Donaghy,
2011, p. 81)
What role does infrastructure play in housing supply?

Infrastructure has the potential to be a significant bottleneck in the supply of housing if its delivery is poorly
timed, or poorly located. Local Government New Zealand suggests that the availability of infrastructure can
act as a limit to urban growth:
In essence, the availability/future provision of infrastructure is a de facto urban limit ultimately, the
land is not shovel ready until main trunk infrastructure has been extended to a point at which it
becomes economical for a developer to meet the cost of connecting. (sub. 54, p. 9)
On the other hand, infrastructure that is poorly located or delivered too early will add unnecessary costs. The
fact that infrastructure is such a critical part of the land supply chain heightens the importance of effectively
planning and timing its delivery.
Infrastructure to support residential growth

Accommodating residential growth requires:
transport highways, local roads, footpaths and cycleways, and public transport;
water drinking water supply (also referred to as potable water), collection and treatment of
wastewater, and removal of stormwater;
energy electricity and natural gas transmission and distribution;
telecommunications fixed line, mobile coverage and internet; and
social and community infrastructure such as public recreation space, libraries and schools.
147
148
Most types of infrastructure can be grouped into two categories: trunk infrastructure and local infrastructure.
Trunk infrastructure refers to assets that serve a large number of households such as trunk water lines or
urban rail services. Local infrastructure relates to the requirements that are specific to a subdivision or
dwelling, such as individual connections to trunk water. For example, a new subdivision will generally require
construction of roads within the subdivision that are used primarily by residents living within the subdivision.
These roads will link to existing connecting roads that are shared with a wider range of users. Similarly, water
supply to a new apartment building might make use of an existing water treatment plant (shared
infrastructure) yet also require local connections.
What are the infrastructure costs associated with new dwellings?

The infrastructure costs associated with new dwellings can be grouped in three categories: the cost of
constructing local infrastructure; charges levied to recover the costs of extending or increasing the capacity
of trunk infrastructure; and connection charges for privately provided infrastructure such as power and
telecommunications.
Local infrastructure construction costs Local infrastructure (site-specific or within a subdivision) is typically
constructed and funded by the developer. The construction costs for local infrastructure are very sitespecific. They also vary depending on the engineering standards that are set by the local council (use of
infrastructure standards and their variability is discussed in section 6.7). For development in the Wairakei
Urban Growth Area (located in Papamoa East, Tauranga), the local infrastructure costs (including section
earthworks and excluding GST) are estimated at $44 000 for each section (Tauranga City Council, 2010).
Trunk infrastructure Extensions to trunk infrastructure that are required to support urban growth are usually
constructed by the council (in some cases developers will construct this infrastructure where a development
agreement has been reached). As noted by Tauranga City Council, extending infrastructure networks to
accommodate growth can be very costly:
TCC has recently rezoned over 300ha of land for residential, industrial and commercial development in
Papamoa East Putting aside the infrastructure costs built to accommodate growth in the whole city
that partly relate to this new area like water and wastewater treatment plants, the capital expenditure
that TCC will incur to specifically service this new growth area is estimated to be approximately
$114m. (Tauranga City Council, sub. 47, pp. 1516)
The Centre for International Economics (2015) recently conducted an assessment of the infrastructure costs
incurred by Auckland Council (including council controlled organisations) associated with 12 current or
recently completed developments in a variety of locations within the Auckland area. Costs (for parks,
transport and three waters infrastructure) varied significantly between the different developments, ranging
from around $25 000 a dwelling to just over $50 000 a dwelling (excluding GST) (Figure 6.1).
Costs associated with new or extended trunk infrastructure are typically recovered at least in part through
development contributions (a type of charge that councils levy from developers). Development contributions
vary markedly, but in high-growth areas they are often between $20 000 and $30 000 for each dwelling. The
use of development contributions is examined in detail in Chapter 7.
Private infrastructure New dwellings will require connections to private infrastructure particularly power
and telecommunications. The private utilities companies that provide these services will typically charge a
fee to connect to these services. For example, Vector notes that [s]ingle residential electricity connections
are individually designed and quoted and pay the incremental cost of connection (on average around $2 500
per connection) Larger more complex jobs are charged using an incremental profitability test comparing
incremental revenues with incremental costs (sub. 11, pp. 45). Under their contract with Crown Fibre
Holdings, Chorus charges a connection fee of $900 (excluding GST) for each lot for developments of four
lots or more for fibre reticulation (Chorus, 2015).
Total infrastructure costs for new dwellings Each infrastructure cost figure set out above will vary
depending on the development location and the characteristics of the dwelling. Therefore it is not possible
to draw a firm conclusion from these figures about a typical infrastructure cost. With this caveat in mind,
total infrastructure costs are likely to be in the vicinity of $80 000 (including GST) for each dwelling a
significant share of the total cost of most new dwellings. This estimate does not include costs associated with
increased demand for community infrastructure such as libraries and community halls.
F6.1
Infrastructure costs account for a significant share of the cost of new dwellings. Costs
are location-specific and consist primarily of on-site infrastructure construction costs,
development contributions and connection fees for private utilities.
Do infrastructure costs vary depending on the type of development?

Total infrastructure costs associated with new dwellings are highly variable. Costs will vary depending on a
range of factors, including the dwellings location, its proximity to existing infrastructure assets, and the type
of dwelling. Many inquiry participants commented on infrastructure costs and whether there is a significant
variance between higher density or infill housing and greenfield developments. Most suggested that infill
housing and higher-density housing tend to be less costly to service provided that the existing infrastructure
has spare capacity. But infrastructure costs can become very expensive if retro-fitting is required because
existing assets have reached capacity:
Where there is existing infrastructure capacity and available developable land, as is the case in some of
our rural towns (Ngaruawahia and Huntly), it is certainly less costly to accommodate new infill
development. However in some towns and villages (Pokeno and Tuakau for example) current levels of
road and three water infrastructure are near to capacity and will require new infrastructure to provide for
both additional infill and greenfield development. (Waikato District Council, sub. 12, p. 19)
Brownfield development usually occurs where there has been previous infrastructure investment and
spare capacity exists. It is cheaper to use that capacity in preference to providing new infrastructure for
greenfields areas. For transport in particular, it is more expensive to provide public transport services
where they are required for greenfield development in areas not already covered. Greenfields
developments are usually lower density and thus less conducive to public transport viability and add to
its cost. (Auckland Transport, sub. 68, p. 7)
the additional infrastructure required to either connect greenfield areas to the existing networks or
provide standalone treatment facilities typically results in the per property servicing cost in greenfield
areas being more expensive than brownfield areas. Brownfields or infill development can often be
accommodated by the spare capacity within existing infrastructure, requiring no or little additional
investment until that spare capacity is exhausted. (Auckland Council, sub. 71, p. 10)
Infill development can be more affordable to service in the short-term, but infrastructure for
infill/intensification can be extremely expensive once capacity has been reached. (Hamilton City Council,
sub. 70, p. 10)
Some submissions suggested that there is a tendency to overstate the potential infrastructure savings
associated with higher-density development:
Councils tend to understate brownfields infrastructure costs and overstate greenfields costs In cases
where intensification necessitates over time the replacement of local infrastructure and the upgrading of
main infrastructure the cost is considerably greater than the cost of greenfields development (Richard
Burton, sub. 28, p. 9)
Intensification, and the addition of infrastructure capacity for it, involves extremely high costs, of access,
disruption, land acquisition, demolitions of existing structures, higher capital intensity per unit of floor
space serviced, and so on. (Phil Hayward, sub. 41, p. 30)
The Urban Taskforce (2009, p. 8) examined the relationship between urban form and infrastructure costs.
They conclude that higher levels of urban density, in general, lead to cities that are cheaper to build and
run. However, they also note that costs are very site-specific and depend on the nature of existing
infrastructure and whether a development requires a small additional investment in that infrastructure, or a
complete overhaul. This conclusion is supported by recently published research into the cost of
infrastructure in Auckland (Centre for International Economics, 2015) which shows that, on average, higher
density developments incur lower servicing costs (Figure 6.1). However there is considerable variation in
costs between sites of similar density.
149
Figure 6.1
Infrastructure costs in Auckland by development density
$60 000
Low density
High density
Medium density
$50 000
Average cost per dwelling
150
$40 000
$30 000
$20 000
$10 000
$0
CBD
Sugartree
Beaumont
Quarter
New Lynn
Transport
Stonefields
Hobsonville
Point
Stormwater
Addison
Water
Weymouth
Source:
Babich Hills
Silverdale
Riverhead
Hingaia
Anselmi
Ridge
Wastewater
Parks
Centre for International Economics, 2015.
There is a growing volume of international studies that examine the relationship between the nature of the
built environment and the cost of infrastructure and other public services. Within this research there are
conflicting results, however, on balance the existing research favours the hypothesis that low-density
development is more expensive to support (Box 6.1).
Box 6.1
International evidence on infrastructure costs and urban form
The OECD (2012) finds that a compact city can reduce the cost of urban infrastructure:
The segregated land use associated with low density and urban sprawl tends to require a relatively
higher level of infrastructure roads, water and sewer systems, schools and privately owned utility
systems than would be needed for more compact development In contrast a compact city can
increase the efficiency of infrastructure investment and reduce the cost of maintenance,
particularly for line systems such as transport, energy and water supply, and waste disposal.
(OECD, 2012, pp. 6364)
Carruthers and lfarsson (2008) examine whether spatially extensive land-use patterns cost more to
support, and how any influence differs among different types of spending. Their analysis is based on
the per capita spending of local governments in all 3 075 counties in the United States during the 2002
fiscal year.
While there is a lot of variation in how the density and the spatial extent of development influence
different types of service, other things being equal, sprawl, as a cost factor, nearly always raises per
capita spending and the effects translate into large dollar values when summed across the entire
country. They are also quite large on a case by case basis when capitalised at a conventional longterm lending rate as approximations of opportunity costs. (Carruthers and lfarsson, 2008, p. 1816)
Carruthers and lfarsson calculate the hypothetical savings that could be achieved if land-use patterns
had evolved more densely and note that the hypothetical savings are non-trivial enough that some
places may wish to identify how to achieve a better connection between financial planning and land
use (ibid, p. 1814).
Research examining the cost of providing public services, including infrastructure, in Japanese cities
finds the concentration of population within a city reduces the per capita cost of providing the public
service (Nakamura & Tahira, 2008).
A review of cost of growth studies conducted for the Canada Mortgage and Housing Corporation
drew the following conclusion:
Studies are close to unanimous in stating that development models that are denser, direct growth
close to existing infrastructure and follow contiguous patterns, result in lower capital, operating,
maintenance and replacement costs. However, it is very important to stress that they do not agree
on the magnitude of these variations. (Dillon Consulting et al., 2005, p. 14)
While most research points toward higher-density land use being less costly to service, some studies
have reached the opposite conclusion. For example, Cox and Utt (2004) examine expenditure in the 49
municipalities in the United States with a population of at least one million. Their analysis indicates that
the lowest expenditures per capita tend to be in medium- and lower-density municipalities.
Ladd (1992) finds an inverse-U relationship between density and per capita spending. For densities
between 0 and 250 people per square mile, costs fall quite steeply with increasing density. However,
beyond the relatively low average density of 250 people per square mile, the costs of providing public
services increase with population density (Ladd, 1992, p. 283). Notwithstanding the problems in
measuring density using the people per unit area approach, densities in New Zealands larger cities are
already well in excess of 250 people per square mile.
F6.2
6.3
Most inquiry participants suggested that higher-density urban developments are less
costly to service with infrastructure, particularly when existing infrastructure assets have
not yet reached capacity. International research examining the relationship between
urban form and infrastructure costs generally supports this proposition.
How does the planning process work for infrastructure?
The infrastructure planning process

Councils invest significant time and resources in managing their infrastructure assets and planning for
network extensions. Most planning requirements are set out in the LGA and the LTMA. Councils, private
developers and utilities companies also have to follow RMA processes when building new infrastructure.
Local Government Act processes

Section 10 of the LGA sets out the purpose of local government, and includes specific reference to the
important role that local government has in the meeting the infrastructure needs of both current and future
residents:
(a) to enable democratic local decision-making and action by, and on behalf of, communities; and
(b) to meet the current and future needs of communities for good-quality local infrastructure, local
public services, and performance of regulatory functions in a way that is most cost-effective for
households and businesses.
The Act also sets out a range of planning requirements relating to the provision of infrastructure that local
authorities 34 are required to undertake. These are summarised in Table 6.1.
34
Regional councils, unitary councils and territorial authorities.
151
152
Table 6.1
Local Government Act planning processes
Requirement
Mandatory
Timeframe
Main purpose
Long-Term Plan
Yes
10 years
To plan activities and service provision over a 10-year

timeframe. LTPs also include revenue and financing
policies, and must be accompanied by policies on
development and financial contributions.
Infrastructure strategy
Yes
30 years
To plan the maintenance and improvement of

infrastructure assets, along with investment in new
infrastructure, over a 30-year timeframe.
Asset management plans
No
Varies
To manage infrastructure assets in a way that meets

required levels of service for current and future
customers in the most cost-effective manner.
Financial reporting
Yes
1 year
To report planned and actual performance against a

number of financial performance benchmarks.
Annual Plan
Yes
1 year
To set out planned activities, revenue and

expenditure for the coming financial year.
Long-Term Plans
The LGA requires all local authorities to prepare a Long-Term Plan (LTP) every three years, covering a period
of at least ten financial years. LTPs set out the local authoritys planned activities and expected performance,
the community outcomes it is pursuing, and forecast revenue and expenditure. These tasks are specifically
required for the following classes of infrastructure:
water supply;
sewerage and the treatment and disposal of sewage;
stormwater drainage;
flood protection and control works; and
the provision of roads and footpaths.
LTPs must include a funding impact statement that sets out revenue and funding across different classes of
infrastructure. The funding impact statement includes details of what operational and capital funding will be
raised from different sources (for example rates, fees and charges, or subsidies and grants), and how this
funding will be applied.
LTPs are also required to include a revenue and financing policy that explains how and why the local
authority has arrived at the choice of funding tools set out in their forecast financial statements (SOLGM,
2014). Local authorities must also have a policy on development contributions and financial contributions
although this policy does not need to be included within the LTP. Development and financial contributions
are charges associated with land-use development and can be imposed to avoid or mitigate adverse
environmental effects, or reflect the impact of a development on infrastructure use.
Infrastructure strategy
The LGA was amended in 2014 with the introduction of a new requirement for local authorities to prepare an
infrastructure strategy and incorporate this within their LTP. These strategies should identify: infrastructure
issues over a 30-year timeframe, the authoritys plans for maintaining and improving its infrastructure assets,
the estimated expenses, and key decisions that will need to be made about capital expenditure. The
strategy must also explicitly state the authoritys assumptions about the lifecycle of infrastructure assets, and
changes in demand and service levels. Prior to the introduction of these requirements, authorities were only
required to undertake infrastructure planning over a 10-year timeframe.
A central function of infrastructure strategies is to provide thinking and planning in terms of:
the level of infrastructure investment needed to provide for community growth;
managing the timing of investment for growth, to avoid constraints on growth from limited infrastructure
capacity while minimising the costs of underused capacity;
the level of investment needed to replace, renew or upgrade existing assets (upgrades are often
necessary when increased capacity is required due to more intense housing);
how to balance service-level expectations with affordability in the context of anticipated demographic
changes such as depopulation and ageing; and
what level of investment, if any, is needed to improve the level of service provided by those assets (DIA,
2014a).
Asset management plans

The 2014 amendments to the LGA also emphasise the importance of asset management planning. Section
14(1)(g) of the LGA states that a local authority should ensure prudent stewardship and the efficient and
effective use of its resources in the interests of its district or region, including by planning effectively for the
future management of its assets.
This provision reflects the fact that preparation of asset management plans is good practice, but stops short
of introducing a mandatory requirement for local authorities to develop asset management plans in a
prescribed format. The high-growth councils that are the focus of this inquiry each have management plans
in place for at least some of their infrastructure assets.
Financial reporting requirements
Regulations introduced under the LGA in 2014 require local authorities to report in their Annual Plans,
annual reports and LTPs on their planned and actual performance against a number of financial performance
benchmarks. Financial benchmarks and their impact on council behaviour are discussed in Chapter 7.
Annual Plans
Local authorities must also prepare Annual Plans that detail activities, revenue and expenditure for the next
financial year. The purpose of an Annual Plan, as set out in the section 95 (5) of the LGA, is to:
contain the proposed yearly budget and funding impact statement for the year to which the Annual Plan
relates;
identify any variation from the financial statements and funding impact statement included in the local
authority's LTP in respect of the year;
provide integrated decision making and coordination of the resources of the local authority; and
contribute to the accountability of the local authority to the community.
An annual report must be prepared for each financial year to compare activities performed with those set
out in the Annual Plan.
Land Transport Management Act processes

The Land Transport Management Act 2003 governs the funding of major transport projects and services,
including road policing, public transport, and maintaining and developing the state highway network and
local roads. The LTMA was amended in 2013, with several changes made to the Acts planning and funding
framework. These changes sought to make the legislation more streamlined, simpler and less prescriptive
(Ministry of Transport, 2015).
Through its Government Policy Statement (GPS) on Land Transport, central government sets the overall
objectives and long-term results sought over a 10-year period, and expenditure ranges for each class of
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transport activity. 35 The New Zealand Transport Agency (NZTA) then develops a 3-year National Land
Transport Programme (NLTP), which gives effect to the GPS and outlines the activities that will receive
funding from the National Land Transport Fund. These activities are selected from proposals prepared by
regional land transport committees, which include representatives of NZTA and the relevant regional council
and territorial authorities. 36
Activities proposed for funding must form part of a Regional Land Transport Plan. Section 16 (12) of the
Land Transport Management Amendment Act 2013 sets out the requirement for regional land transport
committees to develop a Regional Land Transport Plan:
A regional land transport plan must set out the regions land transport objectives, policies, and
measures for at least 10 financial years from the start of the regional land transport plan.
A regional land transport plan must include
(a) a statement of transport priorities for the region for the 10 financial years from the start of the
regional land transport plan; and
(b) a financial forecast of anticipated revenue and expenditure on activities for the 10 financial years from
the start of the regional land transport plan; and
(c) all regionally significant expenditure on land transport activities to be funded from sources other than
the national land transport fund during the 6 financial years from the start of the regional land transport
plan; and
(d) an identification of those activities (if any) that have inter-regional significance.
Once the NLTP is confirmed, local authorities can seek funding for activities carried out in their area. The
National Land Transport Fund typically does not cover the full cost of these activities. Recent NZTA decisions
mean that the National Land Transport Fund will meet an average of 53% of costs across the country. Local
authorities contribute the rest, from sources such as rates, development contributions and passenger fares.
The exact funding rate varies between 51% and 75% depending on ability of local authorities to deliver
transport outcomes. The current funding rate for councils that are the focus of this inquiry is 51%, except for
Waikato District (54%, transitioning to 52% by 2017) and Whangarei District (54% in 2015, 53% from 2016).
Conclusion on infrastructure planning

New Zealands local authorities collectively own infrastructure assets valued at $76 billion. Just under half of
these assets (by value) are owned by the 10 high-growth councils that are the focus of this inquiry (Statistics
New Zealand, 2014b). These infrastructure assets have been planned, purchased and built over many
decades (Local Government Infrastructure Advisory Group, 2013).
Reflecting the importance and value of local infrastructure, councils are required to undertake a range of
infrastructure management and planning processes. Statutory planning requirements under the LGA have
increased in recent years, with councils encouraged to prepare asset management plans, and a requirement
to produce a 30-year infrastructure strategy. The increased requirements under the LGA have been partially
offset by recent legislative changes that seek to streamline the transport planning requirements required by
the LTMA.
F6.3
Councils are required to undertake a relatively rigorous infrastructure planning

processes a reflection of the fact that councils are asset-intensive organisations.
Despite this recent rebalancing in this legislative planning frameworks, councils face challenges in
integrating longer-term land use, infrastructure and transport decisions. These challenges are discussed in
Chapter 3 and a new legislative planning avenue is proposed to help resolve them. Local authorities also
The 2015/16 2024/25 GPS notes 10 transport activities: state highway improvements; state highway maintenance; local road improvements; local road
maintenance; public transport; walking and cycling improvements; regional improvements; road policing; road safety promotion; and investment
management.
35
36
Auckland Transport plays this role in Auckland.
face shorter-run difficulties in planning and delivering infrastructure. These difficulties are examined in the
following sections.
6.4
Challenges in planning infrastructure
As discussed in the previous section, councils use a range of planning documents to set out infrastructure
requirements over the short, medium and long term. Councils report that, through these processes, they
seek to ensure that infrastructure is delivered effectively to support growth:
Council is taking a 30-year view of the infrastructure Auckland will need, ensuring we have robust plans
for providing the right infrastructure, in the right place, at the right time. (Auckland Council, sub. 71, p. 9)
The Council [is] proactively planning for the future of the city, including using collaborative processes
with other agencies, stakeholders, and the community. The Council is currently developing a 30 year
growth management strategy which aligns land use and infrastructure planning and financial and asset
management. (Wellington City Council, sub. 21, p. 13)
While councils report that they view population growth in their cities as positive, accommodating growth is a
source of significant tension. As discussed in Chapter 9, councils may come under pressure from existing
residents who do not share their enthusiasm for growth. Likewise, the costs associated with rolling out
infrastructure to support urban growth creates another source of tension for high-growth councils.
A consistent message from councils is that to keep these costs in check, the supply of infrastructure must be
very carefully managed. Councils generally seek to ensure that development occurs only in specified
locations, and that the extent of any extensions in infrastructure is closely matched to the rate at which
development is occurring. Submissions from councils and other organisations suggest that there are sound
reasons for taking this approach:
Councils have a limited range of funding sources to cover the capital expenditure associated with
investment in new infrastructure (subs. 26, 36, 47 and 57).
New infrastructure generates operating costs such as depreciation as soon as it is constructed. However,
there is a lag before it generates any additional revenue from either development contributions or rates.
Investing too early in strategic infrastructure results in an increased exposure to maintenance and
operation costs and interest costs while the Council incrementally repays the debt by recouping its
growth related costs from subsequent development (development contributions) (Hamilton City
Council, sub. 70, p. 9). Tauranga City Council makes a similar point, noting that opening numerous areas
to development would draw development away from areas where infrastructure investments have
already been made. This would result in compounding interest on existing debt because of slower
recovery of development contribution revenue (sub. 47, p. 17).
Providing infrastructure in advance of the time that it is required for development opens councils to the
risk that development occurs at a slower rate than anticipated (Western Bay of Plenty District Council,
sub. 36). This risk is front-of-mind for many councils where development has only recently picked up pace
following a period of slower-than-anticipated growth during the Global Financial Crisis.
Councils typically deal with these issues by ensuring that infrastructure is only expanded on a limited number
of fronts and by pursuing a just in time approach to delivery (Box 6.2).
Box 6.2
Approaches to the supply of new infrastructure
SmartGrowth
The Strategys land release programme has been carefully sequenced to minimise any negative
effect of land supply issues in the sub-region, and to avoid having development open on too many
fronts. (sub. 27, p. 3)

the Council adopts an approach of putting in new infrastructure on a just-in-time basis and
only to the extent that the Councils debt to revenue ratio policy is not breached. (sub. 70, p. 9)
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Te Tumu Landowners Group

Councils are looking to defer infrastructure spending and apply a just in time approach to
infrastructure delivery; this however will not likely meet changing market conditions and demand.
(sub. 40, p. 13)
Future Proof
An important consideration is achieving efficiency in infrastructure provision by ensuring capacity is
taken up prior to further investment. In addition, while having several development areas open at
once provides a wide choice in housing opportunities, this must be balanced against overall
affordability and ability to fund. (sub. 39, p. 7)
While the broad approach to the provision of growth infrastructure set out above is entirely appropriate from
the perspective of prudent financial management, it is less satisfactory if the aim is to foster competitive
tensions and downward price pressures in the supply of land for housing. Many inquiry participants raised
concerns about the practice of land-banking, where land owners drip-feed land onto the market to maintain
high prices (this issue is discussed in more detail in Chapter 9). While the motivations are different, a
restrictive approach to infrastructure supply can have similar consequences to land banking. For example:
restricting development to a limited number of fronts can reduce competition among developers; and
knowledge that development will be limited to certain locations may reinforce expectations among
investors of a scarce supply of land for housing and resulting future capital gains.
In addition, a just in time approach can also be problematic in some circumstances. Some infrastructure can
be extended incrementally (for example some extensions to the roading network), while other infrastructure
can only be added in large chunks for example a new water treatment plant. The lumpy nature of these
assets means that they can be difficult to accurately match to demand.
A just in time approach can also be problematic in situations where housing demand is stronger than
anticipated. Te Tumu Landowners Group (sub. 40, p. 15) notes that while the just in time approach provides
for prudent debt management, it also reduces the ability for infrastructure delivery to align with changes in
market demand.
F6.4
6.5
Councils tightly control the supply of infrastructure to support urban growth. This is a
prudent approach from the perspective of managing costs and risks. However, it can
constrain the supply of land for housing. In turn, this can contribute to higher land prices
by reducing competition among developers and reinforcing expectations among
investors of a scarce supply of land for housing.
Approaches to increasing the supply of infrastructure
While it is appropriate for councils to take a deliberate approach to planning the delivery of growth
infrastructure, an overly conservative approach to investment will constrain the supply of land for housing.
This will have adverse consequences for affordability. The following section examines options to improve the
supply of infrastructure to support urban growth through:
developer-led infrastructure;
staging the supply of new infrastructure;
maintaining accurate information about the existing supply of infrastructure to support growth; and
ensuring some flexibility in the timing of infrastructure investment.
The funding arrangements for infrastructure to support residential growth (particularly debt-funding and
development contributions) are discussed in detail in Chapter 7.
Developer-led infrastructure
Several councils have expressed a desire to shift the risk associated with delivery of infrastructure onto the
development community. For example, Tauranga City Council note that, in an ideal world, councils would
offload the risks associated with building lead infrastructure to developers. But, given the small scale of most
property developers in New Zealand, few developers are able to manage this risk:
There are very few large developers that can afford and have balance sheet capacity to step in and build
infrastructure in place of a council, especially the high cost lead infrastructure required before
development revenues begin to accrue, like trunk water and wastewater pipes and major road
connections and extensions. (Tauranga City Council, sub. 47, p. 16)
Tauranga City Council also notes that even if developers could afford to take responsibility for lead
infrastructure, a need still exists to ensure coordinated infrastructure services are provided to all
development blocks within a catchment area, not just those that the developer owns. Councils are well
placed to take on this role whereas developers are not as they tend to want to minimise competition
(Tauranga City Council, sub. 47, p. 17).
One option that allows councils to reduce some of the risk associated with the construction of new
infrastructure is through the use of development agreements. The 2014 amendments to the LGA clarified
the legality of councils entering into development agreements, where a developer provides infrastructure as
an alternative to paying all or part of a development contribution. The changes also increase the expectation
on councils to consider a request to enter a development agreement by requiring councils to provide written
notice of its decision regarding a request, and the reasons for the decision.
Waikato District Council provides one example where developer-led infrastructure provision is enabling
rapid infrastructure delivery:
Waikato district has a rapidly growing area in the North (Pokeno) where infrastructure is being
progressed very fast due to the developer taking the lead. We believe it is more related to the market
(developers), and a critical mass issue, i.e. large land holdings gives more autonomy in progressing
capital works whereas the ma and pa individual section developments rely on territorial authorities to
progress infrastructure. (Waikato District Council, sub. 12, p. 19)
Development agreements are also used reasonably frequently in Wellington City:

As most of the greenfield areas in the northern parts of the city areas are owned by 2 landowners,
Council is able to enter into legally binding private agreements with the developer to provide growth
related infrastructure (roading, 3 waters, and reserves). This can be built and paid for upfront by the
developer; or the Council builds it and is reimbursed by the developer. (Wellington City Council,
sub. 21, p. 8)
Many inquiry participants from the land development industry raised concerns about development
contributions and suggested that contributions exceed the true cost of providing services (for example, see
Chapter 7). Development agreements represent one way to by-pass this argument, as they shift
responsibility for building infrastructure to developers. Developers may have a stronger incentive to
construct infrastructure in the most cost-efficient manner and to adopt innovative construction approaches
that lower costs. Developers are also incentivised to construct infrastructure at a standard that purchasers
want. However, little incentive exists to construct infrastructure with long-term maintenance costs in mind
as this responsibility sits with the local authority.
F6.5
Development agreements enable developers to take responsibility for building major

infrastructure. This shift has the potential to generate a swifter supply of infrastructure at
a lower cost.
As formal requirements for development agreements have been in place for such a short time, it is difficult
to assess the effectiveness of such agreements and how often they are used. Anecdotal reports suggest that
although development agreements are used relatively infrequently, their use has increased since the
legislative changes were introduced in 2014. Most agreements are used for relatively small pieces of
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infrastructure such as local sewage pipes and pumping stations. This is likely to reflect, at least in part, the
fact that relatively few residential developers are of the scale needed to commit to the construction of major
infrastructure works.
The Commission is interested in any further information from developers and councils regarding the use of
development agreements, and their advantages and disadvantages.
Q6.1
What are the main advantages and disadvantages of development agreements?
What, if any, barriers exist that unnecessarily limit the uptake of development
agreements?
Taking a staged approach to delivering infrastructure

One challenge identified in the provision of infrastructure is the lumpy nature of assets needed to support
urban growth. This can mean that high-growth councils are faced with a choice between incurring the costs
associated with providing infrastructure that will be underused for a period of time, or delaying investment
and risking a backlog of demand forming.
While it is unlikely that councils will be able to eliminate this issue altogether, certain infrastructure
construction approaches may help to ameliorate it. One example is the approach that Selwyn District
Council (SDC) has taken to the provision of wastewater infrastructure over the past ten years. Its Eastern
Selwyn Sewerage Scheme (ESSS) was developed to meet the existing and future needs of the towns of
Prebbleton, Lincoln and Rolleston. Investment in the ESSS has unlocked 208 hectares of land to
accommodate the districts growing population. Box 6.3 discusses some of the approaches that SDC has
used to manage the risks associated with supplying infrastructure in advance of demand.
Box 6.3
An example of providing infrastructure in advance of demand
In the early 2000s, the wastewater infrastructure for the main towns in the Selwyn District Council (SDC)
area was approaching capacity. Population growth in Rolleston had exceeded expectations and its
infrastructure was approaching capacity. The towns of Prebbleton and Lincoln were connected to
Christchurch City Councils (CCC) wastewater network (under an agreement between SDC and CCC).
However by the early 2000s no further growth could occur in these towns due to a discharge restriction
included in the agreement with CCC.
After assessing population growth projections that pointed toward strong growth in the Selwyn District,
the Council investigated options for wastewater services to meet current and future needs. This led to
plans being made for the establishment of the ESSS.
The ESSS was the most costly infrastructure investment that SDC had made, and there was some
apprehension about the financial risks of investing in infrastructure to accommodate future demand.
The design of the ESSS sought to mitigate these risks by incorporating existing wastewater
infrastructure, minimising capital investment, and through design features that minimised operating
costs.
One particular example of this was the use of staged construction. The ESSS required a major
redevelopment of an existing wastewater treatment plant. This plant was designed in a way that
allowed it to be upgraded over time without compromising ongoing operations or developed in a
modular fashion to minimise the impacts of future construction. The initial stage of development was
for a treatment process to treat 30 000 person equivalents (PE). Additional modules that enable the
plant to process an additional 15 000 PE can be accommodated within the design at a later date.
Delaying the additional stages of development until population projections are reached are estimated
to generate cost savings of $3 million.
Source:
Bishop & Ure, n.d.
The infrastructure requirements needed to accommodate urban growth are generally very site-specific, so
the experience of SDC is unlikely to be directly applicable to other growth councils. Yet it does demonstrate
that where strong population growth is forecast, it is possible to unlock land supply through investment in
new trunk infrastructure.
Innovative approaches to infrastructure construction that lower upfront costs and allow
services to be scaled up as demand increases can help to overcome the difficulties of
investing in infrastructure to support future growth. The staged construction
approached used by Selwyn District Council is a good example of this leading practice.
F6.6
Should councils adopt infrastructure supply targets?

As discussed in Chapter 4, many local authorities have set some form of target for the supply of land to meet
future residential growth. These targets for land supply are of minimal value if the land in question cannot be
built on promptly because it is not serviced with infrastructure.
Chapter 4 notes that councils have a direct influence over several elements within the housing supply chain,
particularly planning policies and infrastructure provision. The chapter recommends that local authorities set
targets for zoned and serviced land, and that they monitor dwelling completions and net changes in the
dwelling stock, relative to expected and actual population and household growth.
Setting targets for the supply of infrastructure is unlikely to be helpful unless those targets are part of a
concerted and coordinated approach that aims to ensure that the supply of dwellings meets demand. A
good practice is for councils to work backwards through the supply chain and identify any measures that
need to be taken, including the provision of infrastructure, to ensure that there are no impediments to a
responsive supply of dwellings. This might involve clarifying the supply of land at different levels of
construction readiness. For example, Christchurch City Council (CCC) provided the Commission with a map
of the city showing greenfield land availability and status as at November 2014 (Table 6.2). This classification
of land supply gives a much more accurate picture of available land and its position in the supply chain.
Table 6.2
Greenfield land status in Christchurch City

Section status
Available sections (November 2014)
Un-zoned and un-serviced (but with zoning and infrastructure planned

within the next 10 years)
8 904
Zoned (with infrastructure planned within the next 10 years)
2 900
Zoned and serviced
3 202
Zoned, serviced and consented
5 079
Sections that are currently being built on

Source:
925
Figures provided by Christchurch City Council, 2015.
R6.1
When councils refer to the supply of land for housing, they should be clear about the
readiness of land for building (eg, un-zoned but planned-for future zoning; zoned; zoned
and serviced; zoned, serviced and consented).
Bringing forward the provision of infrastructure

One risk associated with a tightly controlled supply of infrastructure is that demand for new dwellings may
be greater rate than anticipated. In this situation, it is important that councils have some options to bring
forward planned infrastructure investment so as to avoid a demand backlog. Equally, it is reasonable for
councils to revise and reduce their planned delivery of infrastructure if demand is significantly lower than
expected.
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Tauranga City Council represents one council that has brought forward some infrastructure provisions to
meet demand. Te Tumu Landowners Group (sub. 40) notes that the delivery of a key district arterial road
needed to unlock supply at Papamoa East was brought forward by six years.
Hamilton City Council also has a policy that enables the building of infrastructure earlier than planned,
provided that developers meet any additional costs:
Under the Growth Funding Policy, HCC may consider advance funding infrastructure projects in its LTP
provided that it is cost neutral to the community i.e. the developer carries the costs (including interest)
until the funding becomes available in the allocated year within the LTP. (sub. 70, p. 10)
Inquiry participants have noted that while this provision is good in theory, most developers do not have the
financial capacity to take advantage of this provision. This issue is also acknowledged by Hamilton City
Council:
Generally these agreements work well for smaller infrastructure projects but larger projects can be
prohibitively expensive and there are few developers with sufficient access to capital to fund very large
infrastructure projects. (sub. 70, p. 10)
The Commission is interested in further information from both Councils and developers regarding
mechanisms to better tailor infrastructure investment to meet changing demand.
Q6.2
6.6
What approaches do councils use to match infrastructure investment to changing

demand? How successful are they?
Effective use of existing infrastructure assets
This section sets out the case for making effective use of existing capacity within infrastructure networks. It
then examines two pressing challenges associated with the effective use of existing infrastructure assets:
establishing effective approaches to infrastructure maintenance and asset management; and
use of demand management techniques to incentivise more efficient use of existing assets.
Why is effective use of existing infrastructure important for land supply for
housing?
While the roll-out of new infrastructure is an important factor in the process of supplying land for housing, it
is important to note that councils already own a vast quantity of existing assets. Relative to the costs of
maintaining existing assets, and the costs of replacing existing assets or improving their level of service,
councils spend relatively little to meet additional demand. For example, across all New Zealand councils, an
average of just 19% of capital expenditure is allocated toward meeting additional demand, with the
remainder split between investments to replace existing assets and service improvements (DIA, 2012).
If existing assets can be used more efficiently (for example by avoiding underuse), then councils may be able
to accommodate additional growth without the need for costly new investments, while re-directing their
capital works programme towards increasing the supply of infrastructure where and when it is needed most.
At a global level, McKinsey Global Institute estimate that boosting asset utilization, optimizing maintenance
planning, and expanding the use of demand-management measures can generate savings of up to $400
billion a year (2013, p. 7).
F6.7
Improving the supply of infrastructure for housing is not just about rolling out new
infrastructure. Effective use of existing assets is also an important part of the equation.
Increasing land supply by using the existing capacity of infrastructure more

effectively
One way that councils can manage the costs associated with infrastructure provision without suppressing the
ability of the market to respond to demand is to identify land areas with spare capacity within existing
infrastructure networks. Many councils are already identifying areas of existing infrastructure capacity and
seeking to encourage development within these areas. For example, Auckland Council notes:
Council has prioritised rezoning of land for urban development where there is existing capacity and
lower infrastructure investment costs. Allowing growth to occur outside these areas will require more
infrastructure investment earlier. If no further development occurs in these areas there will be excess
capacity and the cost recovery time frames for investment will be longer. Where this growth is not
planned it may increase costs for subsequent development. (Auckland Council, sub. 71, p. 9)
Wellington City Council recently discovered that a planned redevelopment in the CBD could be
accommodated entirely with existing infrastructure (Box 6.4).
Box 6.4
Unlocking supply by taking advantage of excess infrastructure capacity
Wellington City Council has identified Victoria Street in Wellingtons CBD as an area where they would
like to see more people living and working in future. The council is now in the initial stages of a
redevelopment of the street to improve its pedestrian areas. In the future, the council expects that
Victoria Street will accommodate another 1 100 new apartments housing at least 2 500 people along
with 37 000 m2 of new commercial space.
The councils preliminary estimates were that the infrastructure costs associated with accommodating
this growth could be as much as $20 million. However, more detailed analysis, making use of the
councils asset management systems, showed that the planned level of development could be
accommodated entirely with existing capacity. This finding has prompted the council to undertake a
major project looking at infrastructure use and demand across the city, with a view to optimising use of
previous investments.
Source:
Haydn Read (Wellington City Council), personal communication, 2015.
At least two pre-conditions need to be met if councils are to effectively take advantage of existing
infrastructure capacity.
Councils need to have a thorough understanding of their existing infrastructure assets and the demand
that they are currently under this requires good asset management (discussed in more detail below).
Areas of existing capacity will often be established residential suburbs. This means that taking advantage
of spare capacity is likely to require some form of infill development, or replacing existing housing with
higher-density housing forms. This will only be possible to the extent that planning requirements enable
such intensification to occur (discussed in Chapter 5).
F6.8
Councils can unlock land supply by enabling growth in areas where there is spare
capacity within existing infrastructure networks. This leading practice requires councils
to establish a good understanding of existing infrastructure capacity along with
appropriate planning rules that allow intensification to occur in areas where capacity
exists.
R6.2
Councils should identify areas where there is existing infrastructure capacity and ensure
that planning rules do not prevent intensification from occurring in these areas.
161
Infrastructure maintenance and asset management

Almost all of the high-growth councils that are the focus of this inquiry report that the challenge associated
with providing infrastructure to support urban growth sits alongside the challenge of maintaining and
upgrading existing infrastructure. The collective infrastructure assets owned by New Zealand councils are
valued at $76 billion and councils typically spend between 40% and 45% of their operating expenditure on
maintaining and renewing these assets (LGNZ, 2015a).
The cost of maintenance and renewals, and the potential for this cost to escalate, is seen as a significant
issue for many councils (Local Government Infrastructure Advisory Group, 2013). NZIER notes that historical
infrastructure investment has occurred in waves, and as a result some councils may experience bulges of
asset renewals and replacements:
Long term trends show that there have been two big waves of investment, in 1910-1930 and in 19501986. These waves were synchronised across different types of assets. Such investments will echo in the
future as they come to the end of their useful lives Whether because of these echoes or not, capital
investment has been historically low relative to population and income in recent decades. This suggests
a looming bulge of capital renewals and replacements in coming decades. (NZIER, 2014c, p. i)
Upcoming costs associated with infrastructure assets are noted in planning documents for several highgrowth councils. For example:
Another factor that is increasingly impacting the operating expenditure is the timing of the replacement
of assets. These costs are increasing over the next 10 years and beyond, and relate to the timing of
periods of development in the city and the useful lives of the assets. (Wellington City Council, 2012,
p. 127)
Aging water pipes will show a rapid increase in failures as they reach the end of their economic life. It
has been identified that a significant percentage of the council pipes are at risk of reaching this point
during the next 10 years. (QLDC, 2012b, p. 52)
The Office of the Auditor-General (OAG) has cautioned that councils need to prepare for funding
infrastructure renewals. Their review of 20122022 LTPs for all local authorities identifies a
renewals/depreciation gap of between $6 billion and $7 billion by 2022. This refers to the difference
between planned expenditure on infrastructure renewals, and their forecast depreciation (OAG, 2014a).
Figure 6.2 shows the renewals/depreciation gap for the high-growth territorial authorities that are the focus
of this inquiry.
Figure 6.2
Forecast accumulated renewals expenditure and depreciation, high-growth territorial

authorities
12
10
Renewals/
depreciation gap
Billions
162
6
4
2
0
2013
2014
2015
2016
2017
Forecast accumulated renewals expenditure
Source:
2018
2019
2020
2021
Forecast accumulated depreciation
Productivity Commission using Department of Internal Affairs data.
Note:
1. Christchurch City Council is not included in this figure because it was not required to prepare a Long-Term Plan in 2012.
The OAG considered several factors could contribute to the gap between renewals and depreciation. For
example, the gap could be explained if councils were raising funds during the current 10-year plan
timeframe in anticipation of longer-term asset renewal requirements beyond 10 years. However, little
evidence exists to support this. OAG also note that depreciation could be overestimated or prices
associated with asset renewal work could change over time (OAG, 2014a).
F6.9
Forecasts in the Long-Term Plans of high-growth councils point toward a growing and
potentially under-funded requirement for infrastructure renewals. Effectively managing
ageing assets and funding the renewal of infrastructure are likely to be major challenges
for councils in the coming years.
The challenges associated with managing existing assets, some of which may be approaching the end of
their operational life, while also accommodating additional growth, has placed a premium on good asset
management planning. New Zealand Asset Management Support defines asset management as the process
of meeting a required level of service, in the most cost effective manner, through the management of
assets for present and future customers (NAMS, n.d.a).
Having formal asset management plans has been recognised as good practice for local governments for
some time and the LGA was amended in 2014 to emphasise the importance of asset management planning.
Effective asset management is important for managing maintenance and renewals, but is also relevant for
land supply for housing. Asset management planning can contribute to a more effective land supply process
in at least four ways.
Asset management can enable councils to make better use of existing infrastructure
Asset management gives councils a better understanding of existing infrastructure assets and their capacity.
As noted earlier, one way that councils can increase land supply without costly investments in new trunk
infrastructure is to allow or encourage higher-density housing in areas where existing assets have spare
capacity. Accurate information about the condition and capacity of existing assets is a critical prerequisite for
this strategy.
A better understanding of infrastructure assets may also help councils to extend the life of existing assets, or
mean that existing assets can service a greater number of dwellings. Many councils have specific policies to
try to sweat assets maximising the use and lifespan of existing assets. A better understanding of how
existing assets work may help councils to formulate strategies such as user charges that enable a greater
number of residents to use a certain service.
Asset management can facilitate optimal decisions about the location of growth
Asset management may help councils to better understand the infrastructure costs associated with urban
development in different geographic locations. This in turn will help councils to plan future expansion zones
in the locations that are most efficient from an infrastructure perspective. In addition, more accurate
information about the costs of expanding infrastructure networks in different locations will enable councils to
increase the accuracy of their development contributions policies and the ability of these policies to drive
efficient locational choices.
As discussed above, retro-fitting infrastructure into some existing urban areas can be more expensive than
greenfield expansion (for example, NZTA, sub. 73), so such costs must be clearly understood before
redevelopment begins.
Asset management enables better decisions about infrastructure standards
Many inquiry participants have raised concerns about whether councils are setting appropriate standards for
infrastructure. Councils have been accused for some time of trying to minimise the ongoing maintenance
costs of infrastructure by setting gold-plated standards well in excess of what is necessary. A well-designed
asset management system should give councils accurate information about the upfront costs of different
construction techniques, and how different approaches perform over time.
Asset management can improve coordination
Good asset management can also help councils to coordinate decisions about maintaining, upgrading and
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extending infrastructure among the different actors that deliver urban infrastructure. This knowledge is
particularly relevant for maintenance of infrastructure that is co-located, such as water pipes sited
underneath roads. If a council knows that both assets require attention at a similar time, then they can
coordinate activities and avoid situations such as digging up a freshly re-sealed road. In some situations
there might also be scope to coordinate maintenance work with upgrades so as to increase the capacity of
existing assets (to enable intensification).
F6.10
Effective asset management can enable councils to make better use of existing assets,
facilitate optimal decisions about the location of growth, set well-informed infrastructure
standards, and improve the coordination of infrastructure delivery among different
providers.
A number of commentators have observed that local government has scope to improve its approach to
asset management:
[L]ocal authorities need to step up in managing their infrastructure assets All those involved with
asset services need to talk and work closely planners, asset managers, finance officers, engineers, and
operational departments. Budgeting must be connected to planning, asset management, service
management, and risk management. (OAG, 2014a, p. 9)
[P]rofessional asset management practice is a necessary foundation for good quality and cost-effective
infrastructure. (Local Government Infrastructure Advisory Group, 2013, p. 5)
We must make better use of our existing assets Getting more from the current stock of infrastructure
is about looking at how assets are used, identifying opportunities for improved management, funding
better ways of managing demand and ensuring users expectations are understood. (National
Infrastructure Unit, 2011, p. 2)
The OAG recently reviewed whether local government asset management is giving councils the information
they need to effectively provide roading and three waters infrastructure into the future. The review
emphasised the importance of formal asset management information systems (AMIS), and found that most
councils are not taking full advantage of their asset management systems:
few local authorities use the more advanced functions offered by an AMIS. Advanced functions can
include maintenance planning, asset performance, deterioration modelling, life-cycle cost optimisation,
work management, risk management, and inventory control using a fuller range of AMIS functionality
would help local authorities to manage better quality and more consistent information about their
assets. Industry experts agreed that using more AMIS functionality is necessary and that there is no need
for this to be difficult. (OAG, 2014a, p. 21)
Infrastructure assets owned by the 10 high-growth councils were valued in June 2013 at more than $36
billion, and the operational costs for transport, roading, water supply and wastewater were over $2 billion
(Statistics New Zealand, 2014b). Given the value of council assets, their maintenance costs, and the value
that residents place on well-functioning infrastructure services, it is imperative that councils prioritise
investment in asset management systems, and in staff who are capable of ensuring that these systems are
used to their full potential.
Wellington City Council has made significant headway in its approach to asset management. The councils
asset management team is collecting metadata across their infrastructure assets. This metadata is collated
into an asset management information system that integrates with the councils other management
information systems and models. The council can then undertake extremely granular analysis (for example
the failure rates of individual components that make up a piece of infrastructure) to determine how to most
effectively manage its infrastructure.
One example of how this is increasing efficiency, is that it has enabled the council to track the rate at which
assets deteriorate, alongside the changing costs associated with maintenance and repair. From this data, the
council can accurately identify an assets sweet-spot for replacement where the annualised cost of capital
renewal is less than the annual cost of repairing and maintaining the assets functionality (OAG, 2014a, p. 29).
In a broader sense, the asset management approach allows for evidence-based decisions that balance
financial, engineering and spatial planning considerations (Figure 6.3).
Figure 6.3
Interdisciplinary benefits from asset management
Engineering
- Asset performance
- Clear line of sight for future works
programme
- Investigation of asset condition
- Replacement timing
- Interactivity (eg, roading reseals vs.
pipe renewals)
Financial
- Transparency of future work
programme
- Renewals forecasting (depreciation
commitments)
- Growth forecasting (level of service
and development contribution
commitments)
- Borrowing implications
- Meeting audit requirements
Source:
Balanced and informed

evidence-based decision making
Spatial planning
- Optimised urban planning based
on infrastructure capacity
- Opportunity cost of investment by
suburb
- Spatial planning capacity metrics
(eg, maximum density)
- Social metrics (eg, share of
dwellings within walking distance to
a park)
Adapted from Wellington City Council, 2014.
F6.11
Wellington City Councils approach to asset management is a leading practice. Benefits

of the approach include enabling the council to make more effective use of existing
infrastructure, better coordination and timing of maintenance and replacement work,
and the ability to take an evidence-based approach to spatial planning.
R6.3
Councils should prioritise the development of up-to-date asset management

information systems. This should be supported by recruiting and developing staff with
the skills and expertise needed to make effective use of these systems, and ensuring
that the information from asset management systems is integrated into decision-making
processes.
Does scope exist to better share effective asset management practices?

The OAGs review of management of transport and water assets revealed variability in both the approach to,
and effectiveness of, current asset management practices across different local authorities (OAG, 2014a).
Addressing this variability and improving the quality of asset management is reliant on councils being able
to source a good mix of skilled professional asset managers. However Audit New Zealand (2010) notes that
professional asset management is a complex role that requires a scarce set of analytical skills.
It is important that good practices and approaches to asset management are shared among local
governments. The Commission is aware of quite a range of initiatives that seek to facilitate standardisation of
approaches to asset management, resource sharing, and dissemination of good practices (Box 6.5).
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Box 6.5
Existing initiatives to facilitate sharing good practice in asset management
The OAG have promoted good management of public assets for some time:
My Office has focused on asset management and encouraging good management of public assets
throughout the range of our audit work since the introduction of accrual accounting in the late
1980s. We consistently see that best results are achieved when asset management is integrated
throughout the business. An integrated management approach involves robust information and
systems that are used co-operatively by asset managers, engineers, valuers, planners, corporate
finance staff, management, and the governing body to ensure that the right people contribute the
right information at the right time. (OAG, 2013, pp. 34)
New Zealand Asset Management Support is a non-profit industry organisation that was established to
promote infrastructure asset management practices, policies, and systems. NAMS offers infrastructure
asset management training programmes and has prepared good practice manuals and guidelines
(NAMS, n.d.b).
Some smaller councils have adopted a shared services approach to asset management. For example,
since 2008, the Manawatu and Rangitikei District Councils have had a shared services agreement for
asset services, with staff managed through the Manawatu Asset Group. The increased capacity of the
asset management team is reported to have resulted in the delivery of more robust information to the
governance arms of both councils, facilitating better informed decisions (Audit New Zealand, 2010).
As part of their review of three waters management, LGNZ (2014) is exploring a range of options to
improve asset management. LGNZ also offers training programmes on infrastructure management that
focus on the main infrastructural assets owned and operated by councils.
Several inquiry participants noted that asset management and information about the condition of
assets is relatively better for transport infrastructure, particularly roads. One reason for this is that most
transport infrastructure is visible (unlike many water pipes which are buried underground). This means
that visually inspecting transport infrastructure assets is relatively easy. Another reason is that NZTA
requires councils to record specific information about roads in order to receive funding from central
government. All local authorities use the same software to record information about roads and there
are formal expectations and standards of completeness and accuracy for the information collected
(OAG, 2014a).
The Transport Analytics Governance Group (TAGG) was formed in 2014. It is comprised of Wellington
Council, Christchurch Council, Auckland Transport and NZTA. The group seeks to develop a collective
approach to improve asset management capability and has identified that this requires consistent
practices in terms of data use, processing and analysis (Read & Havakis, 2015).
The Road Efficiency Group is another initiative aimed at sharing perspectives and knowledge to
improve performance in the transport sector. The group was formed in 2012 and is collaborative
initiative by the road controlling authorities of New Zealand. It focuses on three key areas:
a One Network Road Classification to standardise data and create a classification system that
identifies the level of service, function and use of road networks and state highways;
Best Practice Asset Management to share best practice planning and advice with road controlling
authorities; and
collaboration with the industry and between road controlling authorities to share information, staff
and management practices (NZTA, 2013).
Several initiatives to improve asset management are relatively recent, so it may be too soon to assess their
effectiveness. However, the Commission is interested in whether the current approaches outlined in Box 6.5
are helping councils to better manage their infrastructure assets.
Q6.3
How effective are existing initiatives to facilitate standardisation of approaches to asset

management, resource sharing, and dissemination of good practices?
Managing demand for infrastructure through user charges

Most councils are implementing measures to extend the life of their infrastructure assets, or to increase the
number of dwellings that existing assets can accommodate:
[T]he Council seeks to optimise the use of existing infrastructure to defer providing new infrastructure.
(Hamilton City Council, sub. 70, p. 9)
The council has determined that by managing the demand on its assets and by optimising the use of its
existing assets some of the significant works in its forward programme may be postponed. (QLDC,
2012b, p. 52)
The case for user charging

User charging can help councils to improve the productivity of their infrastructure assets and investment.
Paying for infrastructure services gives customers incentives to conserve their use of these services. In some
cases (for example, roads), this can extend the economic lives of the underlying assets and reduce
maintenance costs. In other cases (for example, water), charging can increase councils incentives to maintain
assets such as pipelines to reduce water leakage. Charging for services reduces growth in demand for the
service, enabling councils to accommodate additional population growth with less investment in new
infrastructure assets. User charges, however, need to be set carefully if they are to have the desired impacts
on efficiency (Box 6.6).
Box 6.6
Economic concepts of infrastructure pricing
Infrastructure pricing can promote:
allocative efficiency, which requires that resources are allocated to their most highly valued uses;
productive efficiency, which requires the production of goods and services at the lowest possible
cost; and
dynamic efficiency, by signalling to users the cost of new infrastructure capacity, so as to encourage
efficient investment in infrastructure capacity.
Achieving these efficiencies requires setting prices at marginal cost, to encourage the optimal use of
existing infrastructure and signal to users the cost of an additional unit of a good or service. Prices
above marginal cost will lead to some consumers not being able to use a service, even though the
value they place on it exceeds its cost. Prices below marginal cost provide insufficient incentive for
producers to provide services that consumers would have been willing to pay for.
Marginal costs are forward looking (so have to be estimated), and there is an important distinction
between short- and long-run marginal costs. Short-run marginal costs (SRMC) are the costs of an
incremental change in demand, holding physical capacity constant, while long-run marginal costs
(LRMC) relax the capacity constraint, and assume all factors of production can be varied. When there is
spare capacity, SMRC essentially comprises variable costs. But when capacity is constrained, SRMC
increases to the price that is necessary to bring demand back into equality with the available capacity.
In the case of water, for example, estimating SRMC in such situations requires including the scarcity
value of water (recognising that if one person uses a litre of water, another person must be denied the
use of that water).
Amongst the practical issues that have to be confronted in infrastructure pricing, two are particularly
important:
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Many infrastructure industries are characterised by economies of scale. In these cases, prices set at
marginal cost would not cover all the costs of providing the service. It is common for two part tariffs
involving a fixed charge to cover capital cost and investment in the infrastructure, and a
volumetric charge set equivalent to marginal cost to be used in these circumstances (although
there are other options as well). The fixed charge should be independent of consumption, but may
vary between consumers.
A choice has to be made between setting the usage charge at SRMC or LRMC. When suppliers
require little or no expansions to their network, no significant differences will exist between user
charges based on SRMC or on LRMC. The two will vary, however, when capacity is fully utilised.
Pricing at SRMC leads to allocative efficiency, but these prices can vary considerably across time
and location and are difficult to estimate (for example, the scarcity value of water). Infrastructure
suppliers (and regulators when they have a role) have to weigh up a number of competing
considerations in determining whether to base prices on SRMC or LRMC.
Source:
NERA, 2014; Sibly, 2003.
The benefits of user charging

Introducing user charges can reduce the pressure on existing infrastructure assets thereby extending their
lifespan and reducing maintenance costs. Reduction in demand can also enable councils to accommodate
additional population growth without the need to invest in new infrastructure assets. For example, after
introducing water meters and volumetric charges, Kpiti Coast District Council reported that more than 340
water leaks (amounting to a daily loss of 1.8 million litres) had been detected on private property (Local
Government Infrastructure Advisory Group, 2013). This amounts to the residential water use of around 10 000
people (assuming a daily water use of 177 litres per person 37).
Tauranga City Councils experience with the introduction of water meters and volumetric charging for water
is a leading practice and provides a good example of the benefits that can be obtained by sweating an asset
through user charges (Box 6.7).
Box 6.7
Water metering in Tauranga
In the mid-1990s Tauranga City Council identified that population growth and increased demand for
water would result in their existing water plants reaching capacity by 20042005. The two available
options to address this challenge were to build a new supply scheme, or to reduce water demand and
delay the need for the new scheme. Following public consultation, the council decided to install water
meters and implement universal water charging.
Universal water charging resulted in a reduction in peak demand of approximately 30%, with average
demand reducing by about 25%. This meant that construction of the proposed new water scheme
could be delayed by at least 10 years.
Coupled with the reduction in water demand, there was a corresponding reduction in wastewater
volumes. This meant that upgrades to the wastewater treatment and collection systems could be
delayed resulting in further operational savings.
The overall savings generated by Taurangas metering and charging system have been estimated at
around $4.7 million per year, with the net present value of saving over a 30 year period estimated at $83
million.
Source:
Sternberg & Bahrs, n.d.
Heinrich (2009) conducted a survey of water use in 51 Auckland houses over the course of one year. The survey found that, on average, each person used
179 litres of water a day in summer and 175 litres in winter.
37
Although water metering has proven very beneficial in Tauranga, the approach to water metering and
volumetric charges across New Zealands high-growth councils is varied (Table 6.3). LGNZ notes that the
value of water meters will depend on the cost of investing to meet demand growth (for either water or
wastewater treatment) and the value of information provided from water meters for resource and asset
management (2014, p. 21). The approach to water funding is also influenced by community preferences that
are often highly resistant to change, particularly relating to the use of volumetric metering (PwC & GHD,
2012).
Table 6.3
Approaches to water metering: selected high growth councils

Council
Approach to water metering
Queenstown Lakes District Council
Few residential and non-residential properties are metered.
Christchurch City Council
All properties in living and rural zones are fully metered, but volumetric
charging is not used.
A few (2%) urban residential properties are metered for monitoring purposes
only. About 90% non-rural non-residential properties are metered. No plans
exist to extend metering in urban areas.
Tauranga City Council
All residential properties are metered. The volumetric charge is $1.73/cubic

litre.
Auckland
All residential properties are metered. The volumetric charge is $1.375/cubic

litre for drinking water, and 2.336/cubic litres of wastewater.
Source:
Water New Zealand, 2013; Watercare, 2014a; Tauranga City Council, 2013.
When to use user charging

The potential for introducing user charging depends on weighing up the costs and benefits in each case.
Imposing user charges typically requires some form of metering, which has a capital cost and ongoing
maintenance costs and administration costs (such as reading meters).
The benefits are to be found in the efficiency gains described earlier. In addition, without user charges,
projects may need to be funded through higher rates which impose efficiency costs.
The size of the efficiency gains from user charges is case-dependent, but general observations are that user
charges:
are less appropriate in the case of a public good, from which users cannot be excluded and where one
persons use of the good does not affect anyone elses use (yet few genuine public goods exist);
are more difficult to determine when economies of scale are significant;
may not improve efficiency if demand is totally unresponsive to price (although they may still be justified
on grounds of fairness) (Bird & Tsiopoulos, 1997);
may provide small efficiency gains if the SRMC of supplying a good or service are low; and
may not be appropriate if the governments objective when providing a service is purely distributional.
User charges may need to be adjusted to take account of externalities, when they are significant. For
example, university students typically do not bear the full costs of education, which is expected to have
some spillover benefits in addition to the benefits to the student.
Policy implications
In many cases, introducing user charges is politically challenging. Some will see charging for services that
previously appeared to be free (for example, services that are funded from rates revenue) as a revenuegathering exercise, or as an undesirable step toward privatisation.
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However evidence shows that user charges can improve the productivity of infrastructure assets. It also
shows that user chargers can provide information about residents valuation of services from those assets a
valuation that is largely hidden when these services are funded through rates (Bird & Tsiopoulos, 1997). User
charges also allow consumers to decide what they buy, and in what quantity, giving them greater control
over their economic lives (LGNZ, 2015a).
LGNZ (2015a) examines the prevalence of user charges in their recently published discussion document on
local government funding. It finds that the ratio of user charges to general rates varies significantly between
councils. It finds also that the sorts of activities that user changes fund or part fund are widely divergent.
LGNZ concludes that most councils have scope to apply user charges for some services currently funded
through rates:
Greater application of user charges to replace targeted and general rates for services such as water,
waste management, sewage disposal schemes and the like would enhance economic welfare. (LGNZ,
2015a, p. 43)
F6.12
User charges are an effective approach to demand management that can enable
councils to make better use of existing assets. This can contribute to an improved
supply of land if it increases the number of dwellings that existing infrastructure assets
can support. Also, it has potential to reduce the operating expenditure of councils and
to delay or avoid capital investments in new infrastructure.
In the case of water, the LGA provides considerable flexibility in how local authorities recover the costs of
providing water services. This lets communities and councils decide what degree of cross-subsidisation, if
any, is appropriate (National Infrastructure Unit, 2011). The Local Government Infrastructure Efficiency
Advisory Group (2013) also notes that, with the exception of roads, no legislative barriers exist to introducing
user charges such as volumetric charges for water).
R6.4
Councils should pursue opportunities to make more efficient use of existing

infrastructure assets including through greater use of user charges where this can reduce
demands on infrastructure.
In the case of roads, councils are significantly limited in their ability to introduce user charges. Section 46 (1)
of the LTMA sets out the conditions for establishing road tolling schemes. Following a recommendation
from the Minister of Transport, a road controlling authority (NZTA, a Territorial Authority, or Auckland
Transport) can establish a road tolling scheme for the planning, design, supervision, construction,
maintenance, or operation of a new road. Section 48 (2) prohibits the introduction of tolls for existing roads.
Although councils are unable to introduce tolls for existing roads, approximately half of local government
transport funding comes through grants from the National Land Transport Fund. This fund is comprised
mainly of user charges collected by central government: petrol tax, road user charges, and vehicle
registration and licensing fees. While this is a relatively low-cost system of collecting revenue from road
users, it is not targeted based on the nature of road use. This means the system is limited in being able to
manage demand on particular parts of the road network.
Use of tolls and road pricing were recently examined by the Local Government Infrastructure Advisory Group
(2013) who found that current funding mechanisms do little to incentivise efficient use of transport:
It is unlikely that a base charging system alone will be able to support cost-effective transport
investment in all circumstances. That said, neither will local government rates. This is in part because
there is no clear link between usage and payment and, as a result, there is limited ability to manage
demand for investment and improving levels of service. (p. 96)
The Local Government Infrastructure Advisory Group recommended that the LTMA should be amended to
allow pricing on existing roads where there is a business case that enables effective network optimisation
(Local Government Infrastructure Efficiency Advisory Group, 2013, p. 98). At the time of writing, the
government had not publicly responded to this recommendation.
While the introduction of user charges can be politically challenging, recent survey results suggest that
residents are relatively open to the idea of motorway user charges. Colmar Brunton surveyed 5 000 Auckland
residents about their preferred option for funding a more comprehensive transport network. 57% supported
a motorway user charge, 31% preferred a fuel tax and additional rates, while 10% didnt like either option
and 2% were undecided (Colmar Brunton, 2015). In addition, a survey of around 250 individuals involved in
building and infrastructure markets found that around 70% of participants were in favour of increased use of
user charges to fund infrastructure in Auckland, while fewer than 5% of respondents preferred user charges
to be used less (AECOM, 2015).
As discussed earlier, policies to incentivise more efficient use of infrastructure can allow existing assets to
service an increased population, enabling councils to accommodate growth at a lower cost. The Commission
is supportive of the Local Government Infrastructure Advisory Groups recommendation to amend the LTMA
to allow pricing on existing roads.
R6.5
6.7
Government should adopt the Local Government Infrastructure Advisory Groups

recommendation to amend the Land Transport Management Act to allow pricing on
existing roads where there is a business case that enables effective network
optimisation.
Challenges relating to infrastructure construction
Compared with other issues canvassed in this inquiry, such as planning and funding of infrastructure, inquiry
participants raised relatively few issues relating to physical construction of infrastructure. This section
examines the three main issues that were raised: the process used to designate land for infrastructure under
the RMA; the use of infrastructure standards; and processes to facilitate integration with private
infrastructure providers.
Land designation for infrastructure

One way that delivery of infrastructure is facilitated is through provisions in section 8 of the Resource
Management Act. These provisions allow areas of land to be designated for use as network utilities (such as
roads and telecommunications facilities) or large public works (such as schools and prisons). Designated
areas (designations) are effectively a site-specific zoning that enables works or a project to progress without
the need for a land-use consent from the relevant council. A designation also prohibits any activity within a
designated site that would prevent or hinder a project or work to which the designation relates (Section
176(1) (b) of the RMA).
Designations can only be granted to a requiring authority that has financial responsibility for the project or
operation of the land (A minister of the Crown, a local authority, or a network utility provider approved by
the Minister for the Environment). Once a designation is in place, the requiring authority may do anything
allowed by the designation, and the usual provisions of the District Plan do not apply to the designated site
(MfE, 2010b).
Obtaining a designation involves a similar process to applying for a resource consent. The requiring
authority must submit a notice of requirement to a council before going through a decision-making process
to determine whether it becomes a designation. The decision-making process involves the following steps
(MfE, 2010b, pp. 78).
The requiring authority usually carries out a site or route selection and consultation process.
The notice of requirement is prepared and lodged with the district or city council.
The council decides if the designation should be publicly or limited notified. If so, people and
groups are able to lodge submissions with council.
If the notice of requirement is notified, a public hearing is held where the requiring authority and all
submitters are able to be heard.
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The council recommends to the requiring authority whether it thinks the designation should be
confirmed in the district plan (with or without modification and conditions) or withdrawn.
The requiring authority decides whether to confirm or withdraw the notice (in other words, to
accept or reject the councils recommendation in part or full).
The opportunity exists for the council or any submitter to appeal the decision of the requiring
authority (the appeal is lodged with the Environment Court).
Where the council is also the requiring authority, it does not make a recommendation but a
decision to confirm, cancel or modify the requirement. Submitters can appeal to the Environment
Court.
Notices of requirement can be processed through two alternative routes:
Notices deemed to be of national significance are processed by the Environmental Protection Authority
(EPA). The notice of requirement is referred to either a board of inquiry or the Environment Court, whose
members make a final decision about the designation.
Notices can be directly referred to the Environment Court if the requiring authority requests it and the
council agrees in these cases the Environment Court will make a decision about the designation.
Several submissions have raised concerns about the designation process. Auckland Transport notes that
designations are not sufficiently responsive to fast-track land development as they have a lengthy
(often 5+ years) gestation period and then require additional time for land purchase Adjustments to
the transport planning process to allow the development of more streamlined procedures with flexibility
for faster responses to changing circumstances should be investigated. (sub. 68, pp. 35)
Hamilton City Council raised similar concerns about the timeframes associated with legislative provisions for
infrastructure:
Councils are required to operate within the legislative provisions of the planning and development
system which provide infrastructure for new residential growth areas. This may include resource
consents or designations. Both processes can add cost and time to the process of providing
infrastructure for growth areas The Government should consider specific provisions to enhance the
ability for Councils to efficiently and effectively deliver infrastructure for growth. This could include
streamlined RMA processes for council infrastructure projects. (sub. 70, p. 13)
Wellington City Council raise concerns about the duration of designations:

Infrastructure planning consistent with growth management planning needs to take a long term view.
Land needs to be identified and set aside for roads and infrastructure before development occurs.
However, the designation provisions in the RMA allow only 5 year terms for designations. In specific
cases extensions can be given. In reality however, typical planning horizons for infrastructure are up to
30 years. (sub. 21, p. 9)
Wellington City Council recommends enacting changes to the Public Works Act and RMA to allow longer
term designations be provided for strategic infrastructure (3 waters, roading, etc) than the current 5 years
(sub. 21, p. 44).
Applications to extend designations must be lodged at least three months before the designations expiry,
and show that substantial progress or effort has been made towards giving effect to the designation and is
continuing to be made (RMA, 198 (1) (b)). Requiring authorities may also apply for a designation longer than
five years. However, concerns have been raised in the past that the default 5-year lapse period does not
sufficiently reflect the benefits of long-term planning or the lead time needed to develop and fund
significant pieces of infrastructure (MfE, 2010b).
Q6.4
Is the designation process sufficiently responsive to allow major infrastructure

projects that unlock new land for housing?
Should the default duration of designations be changed?
Standards for infrastructure

The high growth councils that are the focus of this inquiry have each published documents that set out the
engineering standards for infrastructure. For example, Tauranga City Councils required standards for
developing infrastructure and land are set out in The Infrastructure Development Code (Tauranga City
Council, 2014c). The aim of standards documents is to ensure that infrastructure constructed by various
organisations meets certain standards. Standards documents typically include separate sections or
documents that cover infrastructure issues associated with urban growth (such as earthworks and
geotechnical requirements; transport; and the three waters).
Required infrastructure standards are a major source of tension between some councils and developers. This
tension stems primarily from the fact that councils are responsible for the ongoing maintenance, upkeep and
operation of infrastructure, but developers are largely responsible for funding growth infrastructure, and are
also responsible for constructing some infrastructure (Table 6.4).
Table 6.4
Responsibility for infrastructure delivery, funding and maintenance

Construction
Funding
Maintenance
Infrastructure within a
subdivision or on-site
Developer
Developer
Council
Trunk infrastructure
Council (or developer

under a development
agreement)
Primarily developers through

development contributions (the
extent to which costs are recovered
through development contributions
varies between councils)
Council
Note:
1. Some councils have delegated responsibility for constructing and maintaining infrastructure to council controlled organisations.
The funding, construction and maintenance arrangements for growth infrastructure often create misaligned
incentives regarding construction standards.
Given that their primary concern relates to upkeep and maintenance, councils have incentives to require
high construction standards that increase upfront construction costs but lower operational costs. This
practice is often referred to as gold-plating.
Developers are primarily concerned with upfront construction costs, and are therefore incentivised to
reduce these costs. Developers want to make sections attractive to prospective buyers so they have an
incentive to ensure that infrastructure is aesthetically appealing. But there are few incentives on
developers to factor in the durability of infrastructure beyond the period during which they expect to sell
the sections.
The following quotes from submissions illustrate the different perspectives that sometimes emerge between
developers and councils:
Members consider that increases in specifications are often to a level which results in
inappropriate/inefficient long-term spend... We need to find ways to ensure requirements placed on
developers are not gold-plated to insure against future budget constraints. (Property Council
New Zealand, sub. 33, annex 10, pp. 45)
Councils are generally keen not to inherit infrastructure assets that are poorly located, designed, and
constructed, or otherwise not fit for purpose. Council operates engineering standards and policies to
require performance standards for all lifeline infrastructure of council, and these are imposed at
subdivision. (Tasman District Council, sub. 25, pp. 89)
Tension regarding infrastructure often relates to standards that developers perceive as unnecessarily raising
costs or reducing the yield of land. For example:
Requirements to increase footpaths widths increases costs and reduces the number of lots able to be
developed. (Property Council New Zealand, sub. 33, annex 10, p. 4)
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Tension can also emerge regarding the nature of land that developers can contribute toward parks and
reserves (Box 6.8).
Box 6.8
Pocket parks or a maintenance liability?
The Commission has heard from a number of developers that councils take a narrow view of the types
of land contributions that are acceptable for reserves. For example:
Auckland Council parks Dept. will currently only accept 3000m2 football fields as parks. They refuse
to accept pocket parks which are an essential part of intensification (which in turn is a key
fundamental platform to creating affordable housing). People are increasingly looking toward
quality public amenity that has places for people to sit, think, relax and be connected to Wi-Fi. But
the old fashioned thinking that applied when everyone had a 600m2 section of providing large play
fields cannot apply to intensified developments where smaller sections are required to provide
affordable houses which in turn means families and residents need local small park areas for
children to play and for adult to relax, read or simply find some space. (Development Advisory
Services, sub. 75, p. 4)
In response to this issue, councils suggest that larger parks are the most expensive to develop and that
this is what they seek to recover through reserve contributions. Instead, developers sometimes seek to
offload small, low-quality and poorly located parcels of land. These pieces of land then become a
maintenance liability to the extent that even if they are gifted to a council (over and above any reserve
contribution), the council will sometimes not accept them.
The following section sets out some recommendations and good practices for setting and monitoring
infrastructure standards.
Leading practices in the use of infrastructure standards

As discussed above, collecting accurate information about infrastructure assets is an important pre-requisite
to resolving tensions about construction standards. Effective asset management systems should enable
councils to record the upfront cost of different infrastructure solutions (including any changes in these costs
over time) alongside the maintenance and other operational costs of different solutions. With this data,
councils can better demonstrate the rationale for the infrastructure standards that they adopt.
R6.6
Councils asset management systems should feed into decision making about optimal
infrastructure standards. The data used to inform standard-setting should be shared
openly with the development community.
A common complaint among developers is that council infrastructure standards are constantly being raised.
Some developers feel that the rationale for these changes is not transparent and note that the lack of
certainty about standards adds to the costs of development:
Ever increasing requirements, standards and specifications increase complexity, delays and risks which
all increase costs and hinder development There are constant incremental increases to engineering
requirements for no clear reason. (Property Council New Zealand, sub. 33, annex 10, p. 4)
If councils rigidly maintained unchanging infrastructure standards, they would be unable to adapt to current
best practices as new technologies and materials emerge. As such, periodic review and amendment of
infrastructure standards should be seen as a good practice. Yet it is important that, before any standard is
set, a clear case is made for change based on an assessment of costs and benefits including the costs and
benefits that developers incur.
As part of any cost benefit analysis, councils should evaluate how changes to infrastructure standards might
affect partially completed development projects. One inquiry participant noted that on two occasions
infrastructure requirements were changed midway through the development process. In one instance,
changes resulted in a requirement for a larger area of land to be set aside for stormwater purposes (reducing
the yield of the development by about 10%). In the other instance, changes resulted in the unnecessary
installation of water infrastructure. In this case, most of the costs associated with the new infrastructure
requirements were ultimately passed on to the consumer.
R6.7
If councils determine that a good case to change infrastructure standards exists, then
developments that already have consent should be exempt from the change.
Alternatively, developers should be compensated for any additional costs incurred as a
result of the change.
Given the current incentives on councils and developers, a degree of tension regarding appropriate
infrastructure standards may well be inevitable. However, feedback from inquiry participants suggests that
these tensions are managed more effectively in some cases than others. A constructive two-way working
relationship between councils and the development community is an important prerequisite in managing
such tensions.
The Commissions inquiry Regulatory institutions and practices notes the important role that effective
engagement plays in the design and implementation of regulations. Engagement can serve a range of goals
along a spectrum, from informing stakeholders about regulatory settings to empowering affected parties to
make decisions about the nature of regulatory settings (Figure 6.4).
Figure 6.4
Participation in decisions a spectrum of engagement goals
Inform
Consult and
respond
Provide
Provide
stakeholders
stakeholders with
feedback on
information to help
analysis,
them understand
the rationale behind alternatives
and decisions
regulation, the
associated legal
obligations and
compliance options
Source:
Involve
Work with
stakeholders
throughout the
regulatory process
to ensure that their
concerns and
aspirations are
consistently
understood and
considered
Collaborate
Partner with
stakeholders in
each aspect of the
regulatory
decision, including
developing
alternatives and
identifying
preferred solutions
Empower
Place the final

decision
making in the
hands of
stakeholders
Adapted from International Association of Public Participation, 2007.
In the case of infrastructure standards, the involve and collaborate points on the spectrum are the most
appropriate approaches to ensure that councils can appropriately harness the advice and expertise of the
development community. This might involve seeking early input from the development community about
how different standards will play out in practice, and a commitment to seek the views of the development
community before standards are changed or revised.
The SmartGrowth Property Developers Forum is one initiative that appears to facilitate a constructive
dialogue between developers and representatives from the SmartGrowth councils (Box 6.9).
Box 6.9
SmartGrowth Property Developers Forum
SmartGrowth is the spatial plan for the western Bay of Plenty subregion that is overseen by Tauranga
City Council, Western Bay of Plenty District Council, Bay of Plenty Regional Council and Tangata
Whenua. SmartGrowth hosts a bi-monthly meeting with property developers. The purpose of the
Forum is to enable direct industry participation in reviewing and implementing the SmartGrowth
strategy. Specific areas where the Forums input is sought include:
land use and urban form, including the RPS and resulting City and District Plan responses;
infrastructure planning, funding and implementation;
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housing affordability;
development viability; and
the development of statutory and non-statutory policies by the SmartGrowth Partners that either
arise from the strategy or have the potential to impact on the strategy.
Agenda papers and meeting minutes are published online.

Source:
SmartGrowth, n.d.
The Commission is interested in hearing whether the SmartGrowth Property Developers Forum or similar
initiatives in other regions are effective in helping to generate a constructive dialogue between councils and
the development community.
Q6.5
Has the SmartGrowth Property Developers Forum, or similar initiatives in other regions,
been effective in managing tensions between developers and councils?
Should infrastructure standards be more standardised?

Some inquiry participants noted that infrastructure standards across different local authorities vary
needlessly.
Many developers do work in more than one local authority area. It is not clear that variations between
Councils planning rules add extra cost to developments because of the variances but this can add
complications. This is especially true with engineering requirements as there are locations throughout
NZ where certain standards are required to be met in one local authority and firmly held to and in an
adjoining area there is a more flexible attitude, perhaps more performance based, particularly in road
design standards. Even though NZS4404 2010 Land Development and Subdivision Infrastructure is
available to guide design development, most local authorities have their own set of unique design
standards for their own area creating differences between local authority areas and development
standards. (New Zealand Institute of Surveyors, sub. 74, p. 10)
Council documents that set out infrastructure standards and requirements are (by necessity) technical and
lengthy. For example, Auckland Transports Code of Practice is more than 1 000 pages (Auckland Transport,
2013). This volume and complexity makes it difficult to assess the extent that infrastructure standards vary
between different local authorities. In saying this, some variation is evident. For example, Christchurch City
Council sets the following standard for shared pedestrian-cycle pathways:
The minimum clear width of formed paths in legal road is 2.2m (but a desirable width of 2.5m) for
paths shared by pedestrians and cyclists. The formed width should be widened wherever a lot of people
are expected to use the facility. (CCC, 2015a, p. 8.12)
In contrast, Auckland Transport sets a minimum width of 3 metres for a path to be used by cyclists and
pedestrians, with some flexibility:
In some rare instances, a reduction of the minimum 3m width may be required due to topography, land
use or other location based specific reasons. Any reduction in the minimum width will be reviewed on a
case by case basis Where a high number of users (including pedestrians) are expected wider path
widths should be considered. (Auckland Transport, 2013, p. 373)
Hamilton City Council has a minimum desirable width for shared off-road footpath and cyclepaths of
3 metres, except in collector transport corridors in Future urban land use environments, where the
requirement is 2.5 metres (Hamilton City Council, 2012).
Although different infrastructure codes do vary, a number of factors help to generate consistency across
territorial authorities. A particularly important source of consistency is the widespread use of Standards
New Zealands 38 New Zealand Standard Land Development and Sub-Division Infrastructure (NZS4404:2010).
NZS 4404:2010 is applicable to greenfield, infill, and brownfield redevelopment projects. It provides
local authorities and developers a Standard for the design and construction of subdivision
infrastructure. (Standards New Zealand, 2010, p. 22)
Each of the 10 high-growth councils makes some reference to NZS4404:2010 in their infrastructure standards
documents.
Councils also make use of other guidelines to inform their infrastructure standards. For example, Auckland
Transports Code of Practice notes that footpath design must comply with the NZTAs Pedestrian Planning
and Design Guide (Auckland Transport, 2013). NZTA produced this guide with the goal of promoting a
consistent best practice approach to planning, designing, operating and maintaining walking infrastructure
and networks (NZTA, 2009).
Some councils seek the input of other councils when formulating infrastructure standards. For example,
Hamilton City Councils Infrastructure Technical Specifications acknowledges the input of Tauranga City
Council, Western Bay of Plenty District Council, Kpiti Coast District Council, and Christchurch City Council
(Hamilton City Council, 2013).
Some councils are also seeking to achieve greater consistency in infrastructure standards within a region.
The extent of this practice varies.
In some cases, councils have adopted the infrastructure standards used by other councils in their
entirety. For example, Hamilton City Councils six neighbouring district councils (Waikato, Waipa,
Hauraki, Matamata-Piako, Otorohanga and Waitomo) all use Hamilton City Councils Development
Manual (Hamilton City Council, 2013).
In the Canterbury region, Selwyn District Council (2012) and Waimakariri District Council (2014) have both
based their engineering standards on the Christchurch City Councils Infrastructure Design Standard.
Both district councils have modified those standards to suit local conditions and practices.
Wellington Water and the Hutt, Porirua, Upper Hutt and Wellington city councils have published the
Regional Standard for Water Services (Wellington Water, 2012). This standard seeks to consolidate local
engineering standards for stormwater, wastewater and water supply infrastructure in the Wellington
region. However, this standard needs to be read in conjunction with the councils existing development
codes. The Commission is not aware of regional standardisation for other types of infrastructure in the
Wellington region.
Given the costs involved in setting and updating infrastructure standards documents, and the likelihood of
developers and infrastructure providers working across multiple council areas within a given region, efforts
to create regional consistency is a good practice.
F6.13
A number of good practices enable consistency in council infrastructure standards set

by councils. These include the widespread use of the New Zealand Standard Land
Development and Sub-Division Infrastructure and varying approaches to regional
consistency.
Regardless of the existing initiatives to generate consistency in infrastructure standards, the Commission is
interested in whether there is a need for greater consistency.
Q6.6
Is there a case for greater consistency of infrastructure standards? If so, what types of
infrastructure would benefit from greater consistency, and at what level (regional or
central)?
Standards New Zealand develop standards that set agreed specifications for products, processes, services and performance, usually in conjunction with
Standards Australia.
38
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Private infrastructure providers

Council infrastructure exists alongside infrastructure that is built and maintained by private utility companies.
These organisations need to be included early in decisions about infrastructure roll-out and maintenance so
as to enable compatibility. Chorus note in their submission that councils need to engage earlier with private
infrastructure providers:
Chorus is generally only contacted once consent has been granted and the developer wishes to
progress with construction works. Often the costs associated with delivery of telecommunications have
not been taken into account and can (particularly where constraints exist) cost significantly more than
has been anticipated. (Chorus, sub. 73, p. 3)
Chorus (sub. 73, p. 4) notes that The Auckland Infrastructure Providers Forum is beginning to provide a
range of opportunities to partner with the Auckland Council, to work together and engage on regulatory
change (the name of this forum recently changed to the Auckland Infrastructure and Procurement Forum).
The Auckland Infrastructure and Procurement Forum connects infrastructure providers, advisors, constructors
and suppliers to provide for better procurement and co-ordination of major construction projects. The forum
meets quarterly and its membership includes NZTA, Vector, Watercare and Auckland Council. Chorus (sub.
73) recommends that other cities adopt a similar approach.
Q6.7
6.8
What approaches do Councils take to facilitate coordination with infrastructure

providers?
Would there be benefit in establishing infrastructure forums modelled on the

Auckland Infrastructure and Procurement Forum in other high growth cities?
Conclusion
The key issue facing councils as they plan infrastructure to meet population growth is how to optimise the
provision of shovel-ready land in a way that some competitive tension is perceived in the market, while not
over-capitalising in the construction of costly infrastructure. Councils are currently managing this challenge
through a cautious roll-out of new infrastructure in a limited number of areas and on a just in time basis.
This approach is financially prudent, but it runs the risk of infrastructure becoming a bottleneck in the land
supply cycle, particularly where estimates of demand are too conservative.
Staged construction techniques, developer-led infrastructure and clarity about the status of available land
with regard to infrastructure can all help to ensure that the supply of infrastructure keeps pace with demand.
Well-informed investment decisions and effective use of existing assets also have a role to play. For
example:
Councils can reduce the upfront capital costs associated with growth-related infrastructure by prioritising
development in the most infrastructure-efficient land areas.
Councils may also increase effective land supply with relatively low infrastructure expenditure by
ensuring that existing infrastructure assets are used efficiently. This requires planning rules that do not
prevent intensification from occurring in areas with spare infrastructure capacity.
Effective use of demand management approaches (such as volumetric charges for water and road
pricing) can incentivise residents to use infrastructure more efficiently. Councils that have introduced
these practices have seen a reduction in the use of infrastructure assets. This reduction has allowed them
to accommodate additional growth without the need for costly new infrastructure.
Each of these approaches is heavily reliant on good information about the capacity and condition of existing
infrastructure assets, and of the costs involved in rolling out new infrastructure in different locations. This
means that councils need effective asset management processes that inform land-use planning and
decision-making processes.
Chapter 7 | Paying for infrastructure
Paying for infrastructure
Key points
Paying for the infrastructure needed to support urban growth is a significant challenge for some
high-growth councils. The costs associated with urban infrastructure appear to be rising.
Debt is an important source of finance for infrastructure. It enables councils to deliver infrastructure
when it is most needed and for costs to be spread over the life of the asset, meaning that those
who benefit from the infrastructure contribute to paying for it.
Although reports examining how councils use debt have not identified serious issues, recent
amendments to the Local Government Act (LGA) have introduced new financial reporting
requirements including a debt-servicing benchmark. Evaluation of these regulations should monitor
how they affect councils ability to provide infrastructure to support growth and review whether the
current benchmarks for debt-servicing ratios are appropriate.
Tax increment financing (TIF) is used to raise finance for infrastructure in other countries and some
inquiry participants suggested that the approach might be adopted in New Zealand. However, TIF
does not appear well suited to financing many types of growth-related infrastructure and does not
fit easily with New Zealands existing rating system.
Municipal utility districts (MUDs) are another infrastructure financing approach suggested by inquiry
participants. The main advantages of the approach are that it allows infrastructure to be
constructed at the initiative of a developer, and the cost of infrastructure is recovered over a long
timeframe from those that benefit. However, the creation of multiple small and fragmented
resident-managed utilities through MUDs is unlikely to be efficient.
Development contributions are an important funding source for infrastructure. Despite recent
legislative changes designed to improve the approach to development contributions, they remain a
source of tension between councils and developers.
Councils should include information in their development policies about the relationship between
the size of dwellings and the cost of providing infrastructure services. If smaller dwellings impose
lower costs on the infrastructure network, this should be reflected in lower charges.
Leading practices regarding development contributions include policies that enable flexibility
around when development contributions are charged and transparent review of the method by
which contributions are set.
Considerable scope exists for councils to increase their use of targeted rates. Like development
contributions, targeted rates allow councils to charge the beneficiaries of new infrastructure for
their cost, but they differ in that the upfront costs of growth-related infrastructure can be recouped
over a longer timeframe.
The LGA should be amended to allow developers to request that councils construct growthenabling infrastructure, to be repaid through targeted rates on the properties that benefit from the
infrastructure, and obliging councils to consider such requests.
7.1
Introduction
The cost of infrastructure requirements for new dwellings is significant. As discussed in the previous chapter,
total costs can be around $80 000 a dwelling (although costs are very site specific). Having effective
processes in place to recover these costs from the parties that benefit from the investment is important.
However, it is also important to acknowledge that these costs are not immovable and that they could
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potentially be reduced through more efficient provision. The way that councils build infrastructure and
operate existing assets can make a material difference to costs. As set out in Chapter 6, robust asset
management systems are needed to inform decisions about the most cost-effective infrastructure solutions,
and to ensure that infrastructure assets are used to their full capacity. Significant potential also exists for
councils to implement infrastructure demand management through wider use of user charges.
In short, any decisions about how infrastructure is paid for should be framed in the context of ongoing effort
to ensure that infrastructure is provided and managed in a disciplined, cost-effective and efficient manner.
The introduction of more commercial disciplines around the provision of some network infrastructure may be
beneficial in helping to drive this approach. One option in this regard is to separate infrastructure services
into distinct organisations with a specific focus on infrastructure (council controlled organisations CCOs).
Another option is to develop regulatory settings for network infrastructure, such as water, that are similar to
those that exist for telecommunications or electricity distribution. These two options are explored in Chapter
8.
This chapter begins by setting out the challenges associated with paying for infrastructure in high-growth
cities (section 7.2). It then examines how councils raise finance for growth-related infrastructure (section 7.3)
and considers the sources of funds that councils use to pay for infrastructure (section 7.4). The chapter also
examines some issues in relation to developer contributions, which are an important source of funds for
growth infrastructure (section 7.5).
7.2
Challenges associated with paying for infrastructure
A consistent message from councils is that the paying for infrastructure renewals and extensions is becoming
increasingly challenging, largely as a result of rising costs. Inquiry participants advanced three main reasons
for the increasing cost of providing infrastructure:
Development is moving into more marginal land some cities are expanding into areas where the land is
less suitable for development, requiring more costly infrastructure solutions. The Commission has heard
that underground infrastructure can be particularly costly in some parts of Auckland where there is
volcanic rock underground.
Higher standards ratepayers expect better-quality infrastructure services, such as the flood protection
provided by stormwater systems. Central government is also imposing more demanding quality
standards. For example, a 2007 amendment to the Health Act 1956 required councils to take all
practicable steps to comply with (previously voluntary) drinking-water standards and to implement a
public health management plan for drinking-water supply (LGNZ, 2014).
Increasing costs councils also report that the costs of providing infrastructure have increased. As an
indication, over the past 10 years the cost of civil construction projects has increased more rapidly than
the consumer price index (CPI) (Figure 7.1).
Figure 7.1
Capital goods price index for civil construction
1800
1600
1400
1200
1000
800
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Consumer Price Index
Source:
Capital Goods Price Index for Civil Construction
Statistics New Zealand, Capital Goods Price Index.
Note:
1. The capital goods price index estimates the overall price change in a range of physical assets. Civil construction includes mainly
infrastructure-related construction such as roads, electrical works and pipelines.
Alongside concerns about escalating costs, councils also report that recovering the costs associated with
growth-related infrastructure can be difficult. NZIER (2015) surveyed the high-growth councils that are the
focus of this inquiry and asked how important the following factors have been in influencing the rate of
residential development in the community:
supply of land;
cost of new infrastructure;
density restrictions;
development contributions;
city budget constraints;
city council or citizen opposition to growth; and
length of review process for city and district planning.
Responses varied significantly across the nine councils that responded to the survey. But on average the
most influential factor was the cost of new infrastructure, which most councils reported had been either very
important or extremely important. The two exceptions were Queenstown Lakes District Council
(moderately important) and Hamilton City Council (somewhat important) (Figure 7.2).
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Figure 7.2
How important is the cost of new infrastructure in influencing the rate of residential
development?
Christchurch
Hamilton
Queenstown
Lakes
Selwyn
Tauranga
Waikato
Waimakariri
Wellington
Whangarei
0
Source:
Note:
1 all
Not at
important
2
Somewhat
important
3
Moderately
important
4
Very
important
5
Extremely
important
NZIER, 2015.
1. This figure shows responses regarding the development of standalone dwellings. See NZIER (2015) for responses regarding
townhouses and apartments.
Responses regarding the importance of city budget constraints are also relevant to a councils ability and
willingness to roll out growth-related infrastructure. Whangarei District and Tauranga City both reported that
budget constraints were extremely important, while Hamilton City reported that budget constraints were not
at all important (Figure 7.3).
Figure 7.3
How important are city budget constraints in influencing the rate of residential
development
Christchurch
Hamilton
Queenstown
Lakes
Selwyn
Tauranga
Waikato
Waimakariri
Wellington
Whangarei
0
Source:
Note:
1 all
Not at
important
2
Somewhat
important
3
Moderately
important
4
Very
important
5
Extremely
important
NZIER, 2015.
1. This figure shows responses regarding the development of standalone dwellings. See NZIER (2015) for responses regarding
townhouses and apartments.
7.3
How do local authorities finance investment in infrastructure?
This section discusses councils main sources of finance, the relative merits of pay-as-you-go financing and
borrowing, various features of councils approach to debt, and regulations that affect their ability to borrow.
It also reports some assessments of councils approach to debt.
Sources of finance
Financing refers to the way in which debt and/or equity is raised for the delivery of an infrastructure project
(Infrastructure Finance Working Group, 2012). Local authorities can finance investment in infrastructure on a
pay-as-you-go basis (eg, through current government revenue, grants or accumulated savings) or through
borrowing. Figure 7.4 shows the sources of finance used by the growth councils for capital projects, as
indicated in their long-term plans (LTP) 39. For most councils, debt is the most important source of finance.
The significantly higher share of capital funding from subsidies and grants for Wellington City Council is
explained largely by a grant from central government to upgrade social housing.
Figure 7.4
Sources of capital in high-growth councils, 2013
100%
80%
60%
40%
20%
0%
Hamilton
Debt
Source:
Queenstown
Lakes
Selwyn
Subsidies and grants
Whangarei
Wellington
Proceeds from sale of assets
Waimakariri
Waikato
Tauranga
Development and financial contributions
Auckland
New Zealand
Lump sum contributions
Productivity Commission analysis of Department of Internal Affairs Local Government Financial Data.
Note:
1. The data for Auckland Council includes CCOs. CCO data is not included for other councils.
Pay-as-you-go versus borrowing

With pay-as-you-go financing, governments purchase or construct only those capital assets made possible
by financial resources currently at their disposal, such as cash in the capital budget, savings and reserve
funds, or other cash on hand. Pay-as-you-go financing essentially takes current revenues taxes, user
charges, and grants collected in the current fiscal year and applies them directly to current capital
expenditures for the same year.
Proponents of pay-as-you-go financing argue that it avoids interest costs, supports local governments fiscal
flexibility, and maintains their borrowing capacity. However, because pay-as-you-go limits investment
essentially to what can be funded from cash in hand, it is likely to lead to large projects being delayed. But
the main concern with the approach is that it is inconsistent with intergenerational equity. If pay-as-you-go is
employed for assets with a long lifespan, the current generation of users bears all the costs. Future
Christchurch City Council was not included in this dataset as it was granted an exemption from producing a LTP until 2013, pursuant to the Canterbury
Earthquake (Local Government Act 2002) Order (No 2) 2011.
39
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generations pay nothing and yet still enjoy the benefits (although future generations may be required to pay
for the next investments in infrastructure that will primarily benefit subsequent generations):
Funding the asset with a one-off allocation from recurrent revenue means that it is paid for by current
taxpayers, but provides a benefit to taxpayers over the life of the asset. (Dollery, Crase & Johnson, 2006,
p. 281)
These considerations suggest that pay-as-you-go financing should be reserved for assets where the benefits
accrue primarily to current users:
pay-as-you-go is most appropriate for infrastructure with a short life span and a short payback period.
It is best suited for smaller assets with low up-front costs that can be easily covered by current revenue,
and where the assets can be quickly completed or commissioned. Pay-as-you-go is also suited for
technological infrastructure that runs a high risk of becoming obsolete within a relatively short time
frame. Examples of such assets include the municipal vehicle fleet, communications and IT, and other
specialized equipment.
Pay-as-you-go transfers from operating to capital are preferred for ongoing annual expenditures that
are stable and will increase slowly over time. Examples of recurrent expenditures include such things as
the continual maintenance, repair, or upgrading of sidewalks, roads, streetlights, and parks. Pay-as-yougo should generally be avoided for non-recurrent infrastructure such as the construction of buildings,
libraries, museums, and other large fixed assets. (Ploeg, 2006, pp. 3739)
Borrowing enables the cost of assets to be matched with their benefits over their life. This promotes
intergenerational equity, since those who benefit from the infrastructure contribute to its cost. Other benefits
of debt finance include:
councils can deliver infrastructure earlier than they otherwise could have;
there is less need to divert funds from internally generated renewal and maintenance budgets to capital
expenditure;
local governments steady and secure income from rates can be used to meet debt-servicing obligations
and to secure debt facilities;
it can facilitate institutional investment, such as from superannuation funds, which brings with it
additional rigour and discipline (Ernst & Young, 2012).
The total debt of all local authorities is about $10.4 billion, of which around 70% ($7.5 billion) sits with the
10 high-growth councils (Statistics New Zealand, 2014b).
F7.1
Debt is an important source of finance for urban infrastructure in high-growth areas. It

enables councils to deliver infrastructure when it is most needed and for infrastructure
costs to be spread over the life of the asset. This means that those who benefit from the
infrastructure contribute to paying for it.
Councils approach to debt

The Office of the Auditor-General (OAG) points out that most authorities adhere to the principle that debt
should not be used to fund operations. Usually they use debt to fund new assets to meet demand or to
increase levels of service, rather than to fund renewals (OAG, 2012a). The Shand Report (2007) also found
that councils generally use debt to finance investment in long-lived infrastructure that will generate benefits
for current and future generations. Debt financing enables councils to spread the investment costs across
those people who benefit or make use of the investment. It also enables the delivery of services or
infrastructure that would not be possible to deliver using operational income (Shand, 2007).
Total debt levels vary significantly across the high-growth councils (Figure 7.5), but are much more consistent
when measured by head of population (Figure 7.6).
Figure 7.5
Local authorities total debt, 2013
Auckland (incl. Auckland Transport)

Christchurch
Wellington
Hamilton
Tauranga
Whangarei
Queenstown Lakes
Selwyn
Waimakariri
Waikato
$0
$1 000
$2 000
$3 000
$4 000
$5 000
Millions
Source:
Note:
Statistics New Zealand, 2014b.
1. Includes current and term debt for the year ending June 2013.
Figure 7.6
Total debt by head of population, 2013

Queenstown Lakes
Tauranga
Auckland (incl. Auckland Transport)

Wellington
Hamilton
Christchurch
Selwyn
Whangarei
Waimakariri
Waikato
$0
Source:
$1 000
$2 000
$3 000
$4 000
Statistics New Zealand, 2014b.
Councils 2012 to 2022 LTPs showed that gross debt for local authorities is expected to rise to $18.7 billion in
2021/22 (OAG, 2012a). Much of this growth is attributable to the forecast growth of Auckland Councils debt
to $12.5 billion in 2021/22, largely to finance infrastructure to cater for the citys rapid population growth.
Total debt for all other local authorities is forecast to increase from $5 billion in 2011/12 to $6.2 billion in
2017/18 and then drop to $6.0 billion in 2021/22 (OAG, 2012a).
Assessments of councils debt situations

Several reports have examined council debt, and none have found serious issues (Box 7.1).
Box 7.1
Assessments of local authorities use of debt
In 2007, the Shand Report concluded that

local authorities generally have very low levels of debt. In view of the benefits of debt financing
mentioned above it is surprising that debt levels across the sector are so low
The Panel considers that there are very good reasons for local authorities to make greater use of
debt to finance long-life investments. Doing so may advance the date at which the infrastructure
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can be provided and spreads the capital cost more equitably across the generations that benefit
from that service. Moreover, central and local authorities are generally low-risk debtors so they
enjoy low interest rates in debt markets. (Shand, 2007, pp. 15556)
The OAGs 2012 review of councils LTPs found that overall levels of debt were forecast to increase
during the 10 years of the plan. But the review did not raise concerns about the financial prudence of
local authorities forecasts:
Levels of debt are forecast to nearly double during the 10-year period of the LTPs, reaching $18.7
billion in 2021/22. Auckland Council, Greater Wellington Regional Council, and a small group of
other local authorities serving our largest urban communities plan to use increased levels of debt
to fund large infrastructure projects. Their LTPs forecast doing this within reasonable financial
limits and expectations of income. (OAG, 2012a, p. 11)
LGNZ engaged Grant Thornton (2014) to produce a proxy for council financial health based on 2013
data. The approach sought to replicate the factors that a commercial lender would consider when
deciding whether to approve a loan. The proxy was created using five metrics: debt levels relative to
asset base; debt levels to population; ability to repay debt; ability to cover interest obligations; and
population forecasts. Across the five metrics, all of the high-growth councils that are the focus of this
inquiry were found to be sound or higher. Among New Zealands other councils, four fell narrowly
below the sound rating.
The New Zealand Institute of Economic Research (NZIER) (2012) examined aggregate debt levels for
local government using the ratio of debt to existing assets, and the cost of servicing debt as a
proportion of revenue. They concluded that the local government gearing ratio of 6.8% does not
appear worryingly high when compared to the ratio for central government and the NZX-listed
property sector. They also concluded that the ratio of revenue being spent on debt servicing is well
within two suggested prudent levels.
Grant Thornton (2014) notes that water and wastewater infrastructure projects undertaken by Kaipara District
Council and Waitomo District Council created major financial challenges in those districts. Both councils
have implemented measures aimed at gradually reducing debt and improving their financial position.
Notwithstanding these isolated examples, there is no evidence of systemic problems regarding local
authorities use of debt.
F7.2
Recent assessments have not identified serious concerns regarding local authorities use
of debt.
Options for raising debt

Councils ability to use debt depends on their capacity to access financial markets. Lenders will be more
willing to finance proposals from councils that have applied rigorous internal project assessment and have
prioritisation processes intended to lead to the timely delivery of infrastructure which achieves councils
objectives without compromising financial sustainability (Ernst & Young, 2012). These processes are
discussed in Chapter 7.
Local authorities have three main options for raising finance:
Banks and other financial institutions Since 1996, local authorities have been able to borrow directly
from banks (previously, councils could only borrow from the Local Government Loans Board).
Local bonds local authorities may issue local bonds. For example, Auckland Council has five issues of
fixed-rate retail bonds listed on the NZX Limited Debt Market (Auckland Council, 2015a).
The New Zealand Local Government Funding Agency (LGFA) The LGFA was established in 2011 to
raise debt on behalf of local authorities on more favourable terms to them than if they raised the debt
directly (LGFA, n.d.). The LGFA is a CCO and is jointly owned by the central government (20%
shareholding) and thirty councils (80% shareholding). Other than the central government, each
shareholder must be a guarantor.
While local authorities can approach the financial markets directly, the large variation in their size are likely to
be reflected in varying capacities to access external sources of finance. The LGFA is now funding 43 of
New Zealands authorities and is the largest issuer of New Zealand debt securities, after the Government
(Gibson, 2015).
Political pressures concerning the use of debt

In addition to commercial constraints, community attitudes and perceptions can also constrain councils
borrowing. Councils reported that they are faced with strong community opposition to debt due to a
perception that future repayment obligations will result in rates increases.
Several submissions noted community pressure on councils to constrain debt:
a lot of Councillors use reduce debt as one of their election platforms. (Carrus Corporation,
sub. 10, p. 5)
debt reduction was the primary election platform that the majority of the Tauranga City Council
Councillors stood on in the 2013 Local Government elections. (Te Tumu Landowners Group, sub. 40,
p. 13)
Regulatory limitations on the use of debt

Council debt levels are also moderated by regulations introduced under the LGA in 2014. The Local
Government (Financial Reporting and Prudence) Regulations 2014 require local authorities to report in their
Annual Plans, Annual Reports and LTPs on their planned and actual performance against a number of
financial performance benchmarks (Table 7.1). These regulations were introduced to assist in identifying local
authorities where further enquiry is needed regarding their financial management; and to promote prudent
financial management by local authorities (DIA, 2013a).
Table 7.1
Local authority financial prudence benchmarks
Benchmark
Rates affordability
A local authority meets the benchmark if:
Actual or planned rates income for the year quantified limits on rates income set by the
authority in its financial strategy
Actual or planned rates increases for the year quantified limits on rates increases set by
the authority in its financial strategy
Debt affordability
Actual or planned borrowing for the year is within the quantified limits on borrowing set by
the authority in its financial strategy
Balanced budget
Revenue for the year exceeds operating expenses
Essential services
Capital expenditure on network services for the year depreciation on network services
Debt servicing
Borrowing costs for the year 10% of its revenue
For high-growth local authorities, borrowing costs for the year 15% of revenue
Debt control
Actual net debt at the end of the year is planned net debt in the LTP
Operations control
Actual net cashflow from operations for the year planned net cash flow from operations
Source:
Local Government (Financial Reporting and Prudence) Regulations 2014.
Notes:
1. Revenue in the balanced budget and debt-servicing benchmarks excludes development contributions, financial contributions,
vested assets, gains on derivative financial instruments, and revaluations of property, plant or equipment.
2. Operating expenses in the balanced budget benchmark excludes losses on derivative financial instruments and revaluations of
property, plant or equipment.
3. A high-growth local authority means a local authority whose population is expected to grow at or above the national population
growth rate according to the projections of Statistics New Zealand.
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The Department of Internal Affairs (DIA) examines any local authority that fails to comply with the
benchmarks. The Minister of Local Government may intervene in the affairs of an authority if non-compliance
constitutes a significant problem that will have actual or probable adverse consequences for residents
and ratepayers of the local authority (DIA, 2013a).
The Minister can choose from a range of different responses if they perceive that a significant problem
exists. These range from relatively light-handed options, such as requesting information about the problem
and the steps that are being taken to deal with it; to more severe interventions, such as appointing a
Commission to perform and exercise a councils responsibilities, duties and powers; or dismissing the
council and calling a local election (DIA, n.d.).
What is the impact of the financial reporting and prudence regulations?

Most of the councils that are the focus of this inquiry are well within the debt-servicing benchmark (Figure
7.7), with Tauranga (14.1%) and Hamilton and Auckland (both 13.2%) the only authorities where interest
expenditure exceeded 10% of revenue in 2013.
Figure 7.7
16%
Local authorities interest expenditure as a share of total revenue, 2013

Debt servicing ratio for high
growth councils (15%)
14%
12%
10%
Debt servicing ratio for

other councils (10%)
8%
6%
4%
2%
0%
Source:
Statistics New Zealand, Local Authority Financial Statistics, 2014.
Note:
1. A high-growth local authority means a local authority whose population is expected to grow at or above the national population
growth rate according to the projections of Statistics New Zealand.
Local Government New Zealand (LGNZ) notes that the debt-servicing ratio is not currently an issue for most
councils but that for those councils that do have a high debt profile it limits their capacity to support growth:
Nationwide, council debt is low and well within prudent levels, but this is not always the case If a
council has a high debt profile, it will inhibit that councils ability to bring forward capital works to
support new residential growth. (LGNZ, sub. 54, p. 9)
Inquiry participants based in Tauranga and Hamilton suggest that the financial reporting and prudence
regulations are limiting councils ability to provide infrastructure to support urban growth:
The Councils ability to provide infrastructure faster to facilitate development is constrained because of
the need to balance this investment against management of the citys debt, including debt to
revenue ratio, maintaining our credit rating, and maintaining affordable rate increases [and] The
Councils obligations to comply with the Local Government (Financial Reporting and Prudence)
Regulations. (Hamilton City Council, sub. 70, pp. 89)
Hamilton City Councils debt limits are such that providing infrastructure to new areas of land in
advance is not feasible. (Future Proof, sub. 39, p. 7)
Councils are constrained by revenue / debt ratios and their impact on Council credit ratings. Together
with political pressure to keep rates and debt levels low a constant tension exists between providing
infrastructure for the growth of our cities and communities and meeting the expectations of current
communities. (Te Tumu Landowners Group, sub. 40, p. 13)
There is plenty of evidence to demonstrate local authority debt levels are acting as a barrier to the
provision of infrastructure for housing in rapidly growing areas. (Tainui Group Holdings, sub. 53, p. 3)
Overall assessment on debt financing

Good reasons exist for councils to use debt to finance infrastructure needed to support growth, and recent
reviews of councils debt use suggest that the approach to debt is generally sound. Equally, good reasons
exist to ensure that councils use debt in a financially prudent way. Although only just introduced, the
reporting requirements introduced in the Financial Reporting and Prudence regulations appear to strike a
reasonable balance between these competing notions.
For most councils, political pressure is the main restriction on their use of debt. A small number of highgrowth councils are approaching the debt-servicing threshold established in the financial prudence and
reporting regulations. Financing options for these councils are more limited; however, inquiry participants
have not suggested that the debt-servicing benchmarks are unreasonable. In saying this, it is important that
the benchmarks are not unduly restricting infrastructure investment among high-growth councils that have
the greatest need for infrastructure financing. The design of the regulations includes a number of monitoring
and evaluation requirements. These measures seek to monitor effectiveness and to identify any flaws in the
regulations that need correction:
The Department will gather comprehensive data from all local authority annual reports and long-term
plans for analysis purposes. In addition to using that data to assess whether financial prudence issues
exist in any particular local authority, the Department will use this work to evaluate how the sector views
the benchmarks and how effective they are in identifying financial prudence issues.
The Department is also in regular communication with LGNZ, SOLGM, and the Office of the AuditorGeneral. The Department will seek feedback from these organisations about the effectiveness of the
regulations and whether there are any design flaws in the regulations that need correction. The
Department expects to carry out that assessment after the publication of the 2015/25 local authority
long-term plans. (DIA, 2013b, p. 25)
This monitoring approach gives DIA scope to assess the effect that the debt-servicing benchmark is having
on high-growth councils and their ability to invest in infrastructure to support growth. Through its monitoring
activities, DIA should maintain a dialogue with councils to ensure that the impact and any consequences of
the regulations are well understood. In particular, monitoring and evaluation should consider whether a 15%
debt-servicing ratio is an appropriate benchmark for high-growth councils. Evaluation should also seek to
understand how the regulations are affecting the perceptions and political appetite for debt. As discussed
above, debt is often the best option for financing long-lived infrastructure. So it would be problematic if the
financial prudence regulations were encouraging a less is better mentality regarding debt financing.
R7.1
Evaluation of the financial prudence and reporting regulations should monitor how the
regulations affect councils ability to provide infrastructure to support growth and review
whether 15% is the most appropriate debt-servicing ratio for high-growth councils.
Alternative approaches to debt financing

As discussed above, debt is an important source of finance for infrastructure projects. Ratepayers tend to
resist debt that will be recovered from general rates. A number of alternative ways of repaying debt could be
considered. Two particular mechanisms of financing new infrastructure through debt were regularly raised
with the Commission: tax increment financing (TIF) and municipal utility districts (MUDs).
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Tax Increment Financing

SmartGrowth (sub. 27), Wellington City Council (sub. 21), the Greater Christchurch Urban Development
Strategy Partnership (sub. 18), and Hutt City Council (sub. 17) suggested TIF as a possible alternative
mechanism for financing infrastructure investments.
The idea behind TIF is that a local authority forecasts the increase in tax revenue that will result from an
infrastructure investment, and borrows against that future income. This is commonly done in the United
States by issuing bonds, with future tax revenue hypothecated for a timeframe to repay the debt.
The major problem with TIF for growth-related infrastructure in New Zealand is that much of the core
infrastructure required for housing (eg, parks, roads and stormwater infrastructure) does not provide
additional revenue to councils. Accommodating a growing population will mean that councils have a larger
rating base, yet the way that rates are calculated (Box 7.2) mean that a larger number of ratepayers does not
by itself create additional revenue. Rates are calculated in a top-down method; with a council first agreeing a
LTP and a financial impact statement, then allocating the financial burden between ratepayers (as noted in
s 23 of the Local Government (Rating) Act 2002). Where an infrastructure investment increases the rateable
value of newly serviced land, this only causes the total rating burden to be reallocated among ratepayers. No
new revenue is actually generated unless a council also increases its forecast expenditure. Nor is it possible
to forecast what the rate take from a new development will be in the future, because it depends entirely on
the councils expenditure plan (which is subject to change).
Box 7.2
How rates are set
In setting a LTP (see Chapter 3), a council also sets a revenue and financing policy (RFP). This sets out
how and why funding sources are used to fund the capital and operating costs of activities in the LTP.
The RFP must state the councils policies on funding expenditure from different revenue sources,
including general rates (including the choice of valuation basis, differential rates, and whether or not
uniform annual general charges (UAGC) are used), targeted rates, development contributions, financial
contributions, and so on.
For each financial year, the council sets an annual plan (in the year an LTP is adopted, this is the annual
plan). The annual plan must contain a funding impact statement (FIS). The FIS must describe in detail
precisely how general and targeted rates, and UAGCs, are constructed, including differentials. The FIS
does not need to include the actual level of the rate.
The level of rates is set by council resolution (and cannot be delegated). The rates resolution must
apply for no more than one financial year, and must be consistent with the FIS and the RFP. The
resolution must also specify due dates for paying rates and any penalties.
Section 100 of the LGA requires local authorities to ensure that each years projected operating
revenues are set at a level sufficient to meet that years projected operating expenses. A council can
only deviate from this where it resolves that it is financially prudent to do so.
These processes, outlined in the Local Government Act 2002 and Local Government (Rating) Act 2002,
ensure that rates are set in a predictable and transparent manner, and are derived from each councils
expenditure plans, and RFP.
Source:
SOLGM & LGNZ, 2013.
In some countries there have been issues with actual revenue falling short of forecasts. In Australia, concerns
have been raised about whether private financing would be available on reasonable terms, given the lack of
experience with TIF there, and the risk that forecast revenue will not materialise (Ernst & Young, 2012).
Because there is no certainty about additional revenue that could be hypothecated to repay infrastructure
bonds, there appears little prospect that there would be investors willing to support TIF in New Zealand.
Q7.1
Is it correct that New Zealands current system of rates means that a straight adoption of
tax increment financing schemes used overseas is not suited as a funding tool for
growth-related infrastructure?
Municipal Utility Districts

MUDs were explored by Bassett & Malpass in a 2013 paper for the New Zealand Initiative, Different Places,
Different Means: Why some countries build more than others. The paper focuses on the Texan model of
MUDs, but is a common structure across the United States known by a variety of names, most commonly
Special Districts. 40 The United States has as many as 35 000 special districts, and they are the most common
type of government entity (Killian, 2009).
A number of inquiry participants, including Phil Hayward (sub. 47) and Dale Smith (sub. 31), suggested MUDs
as an alternative model for financing infrastructure. A MUD is effectively a statutory authority set up by a
developer, which borrows money (via the issuing of bonds) to construct infrastructure (usually water
infrastructure) and has the power to tax residents in a new development to repay the debt and cover
operating costs. At an early stage, control of the MUD is usually passed from the developer to the new
residents. In due course it is expected that a local council will take over responsibility for managing the
infrastructure, and the MUD will be disestablished.
Bassett & Malpass cited a number of benefits to MUDs:
water infrastructure can be financed on a voluntary basis as it is required;
concerns that existing ratepayers are paying for new growth are allayed;
the cost of water infrastructure is separate from general rates, preventing cross-subsidisation
the cost of infrastructure is not front-loaded into house prices;
they prevent local government from hands-on planning of developments; and
infrastructure and land costs are kept down through competition.
Dale Smith cautions that

developers in NZ would be unwise to try to use MUD infrastructure funding (if made available) without
first having control over the other variables that make a MUD successful as to do so would increase their
risk. That is, the other variables that the commission mentions like development levies, council process
that add time and cost, like inflated raw land prices due to land banking etc., all issues that MUDs do
not have. (sub. 31, p. 19)
Some evidence shows that the residents do not fully understand their future tax liability to the MUD when
purchasing a property, and so the future costs are not capitalised into house prices (Billings & Thibodeau,
2013; Bradley, 2011). Bassett & Malpass (2013) note that no MUD has been annexed by a council in Texas for
some 15 years and suggest that this reflects broad community support for remaining within the MUD. They
also note concerns about whether MUDs will be able to fund the upgrading or replacement of wastewater
treatment facilities when required in the future. Others have raised concerns about the transparency and
accountability of special districts, or suggested that local officials favour the proliferation of special districts
as a way to distance local politicians from unpopular decisions such as the location of landfills (Galvan, 2007;
Killian, 2009).
Potential for MUDs in New Zealand?
MUDs and TIF are both effectively mechanisms that allow the cost of infrastructure to be financed with longterm debt, while passing the obligation to repay that debt on to the future homeowner. They differ in terms
Other names include special service districts, special purpose districts, limited purpose districts, municipal development districts, and special
development districts.
40
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of who initiates the scheme (the developer or the council) and who manages the infrastructure in the interim
(residents or the council).
On the face of it, a proliferation of small, resident-managed water districts seems to have few advantages
from an efficiency perspective. In its submission, Water New Zealand already expressed concern that
[h]aving 86 businesses to provide water governance for 4.4 million customers does not allow for a
coordinated or strategic approach and it is notable the first National Infrastructure Plan (2011) rated
water infrastructure as New Zealands worst performing infrastructure asset and the most in need of
attention. (sub. 30, p. 3)
The significant difficulties faced by smaller communities in New Zealand in maintaining their water
infrastructure and wastewater standards, and the need for central government subsidies to allow such
communities to upgrade to meet drinking standards, all point to the relative inefficiency of small water
infrastructure providers.
However, the MUD model offers the significant benefit (at least in terms of the release of land for housing) of
not requiring local government approval to be initiated. Developers who are able to secure finance do not
need to wait for local government to provide and construct growth-enabling infrastructure. However, much
of these benefits could be captured through use of targeted rates (discussed in section 7.5) a funding tool
that is already available to councils.
7.4
How do local authorities fund infrastructure?
Councils can access a variety of sources of operational and capital revenue, to fund infrastructure services
(Figure 7.8). These revenue sources can pay for both operating costs and also the costs of any debt attached
to infrastructure assets. Total revenue across all local authorities in 2013 was just over $11 billion. This
included around $1.5 billion in revenue generated by valuation changes and other non-operating income.
Operational revenue
Rates General rates are levied based on the value of property and are used for services that benefit the
local community. Local authorities can also employ other rating tools, including uniform annual general
charges and targeted rates (Shand, 2007). Rates are the largest source of council income, generating
$4.6 billion in 2013 (Statistics New Zealand, 2014b).
Current grants Central government provides these grants to support council operations, particularly
transport (via the New Zealand Transport Agency). Another example is the Ministry of Healths Drinkingwater Assistance Programme, which includes subsidies to help small rural communities establish or
improve their drinking-water supplies.
User fees and charges Local authorities levy charges to contribute to the cost of some facilities (such as
swimming pools). Also included in this category is revenue generated from water metering.
Regulatory income and fuel tax Regulatory income includes fees collected to cover the cost of
supplying regulatory services, such as building consents and liquor licensing fees. Local authority fuel tax
is levied on petrol and other fuels at between 0.33 cents and 0.66 cents a litre and is distributed to local
authorities by central government (MBIE, 2015).
Interest and dividends Many local authorities, particularly regional councils, own profit-generating
businesses such as ports, or have investments in financial assets such as bonds and shares.
Capital revenue
Vested assets Vested assets are assets that are transferre d to a local authority as a result of a
subdivision or development.
Development and financial contributions Development and financial contributions are charges
associated with land use development. They can be imposed to avoid or mitigate adverse environmental
effects, or reflect the impact of a development on infrastructure use. These contributions are discussed
later in the chapter.
Capital grants Funding from central government to support capital projects.
Figure 7.8
Summary of local government revenue sources, 2013
100%
Development and financial

contributions
80%
Vested assets
Capital grants
60%
Interest and dividends

Regulatory income
40%
Current grants
User fees and charges
20%
Rates
0%
Source:
Statistics New Zealand Local Government Funding Data 2013.
Note:
1. Excludes income from valuation changes and other non-operating income.
While development and financial contributions account for a relatively small share of total local government
revenue, they are an important tool for funding growth-related infrastructure. The following section
examines the use of development and financial contributions.
7.5
Development and financial contributions
Development and financial contributions are charges associated with land use development. They can be
imposed to avoid or mitigate adverse environmental effects, or to reflect the impact of a development on
infrastructure use (Box 7.3).
Box 7.3
Development contributions and financial contributions
Development contributions were introduced in 2002 to allow councils to recover capital expenditure
associated with facilities such as reserves, three waters infrastructure, and transport and community
infrastructure required to support growth. Development contributions can only be charged to fund the
portion of new infrastructure that is related to growth. They cannot be used to fund:
non growth-related level of service or infrastructure quality upgrades;
maintenance;
renewal of infrastructure; or
infrastructure operating and operational costs, such as salaries and overheads (DIA, 2013c).
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Councils are required to set out a development contributions policy that explains how contributions are
calculated, and their underlying assumptions.
Financial contributions
The financial contributions regime was introduced when the Resource Management Act (RMA) was
enacted in 1991, to provide local authorities with a further method to avoid, remedy and mitigate
adverse environmental effects. Financial contributions can take the form of money or land and must
promote the sustainable management of natural and physical resources. They may be applied to fund
capital expenditure on similar assets to development contributions, but cannot be used to fund the
same expenditure for the same purpose, or to fund operating spending.
Critics and supporters

Critics of development and financial contributions argue that they front-load infrastructure costs onto the
purchase price of new homes and exacerbate housing affordability problems. Some participants have
argued that the cost of development contributions has also been incorporated into the price of existing
dwellings, resulting in higher prices for all home-buyers:
[D]evelopment contributions are levied at the start of the process and added to the purchase price of
new sections. This has had the effect of lifting the general price of all properties in places like Auckland.
(Donald Ellis, sub. 44, p. 11)
One submitter suggested that development contributions create intergenerational inequity by loading
additional costs onto the current generation of home-buyers:
There is a significant inter-generational social justice issue involved here as well we have paid our way
as we go with rates, for generations. Imposing upfront exactions to pay for infrastructure for growth
increases the price of ALL property, not just the price of the properties in new developments against
which the exactions have been made Changing the rules of the game in this way morally requires
some form of rebalancing. (Phil Hayward, sub. 41, p. 42)
Advocates of infrastructure charges note that they enable the provision of important infrastructure to
support growth. By shifting part of the costs associated with growth to those that are creating growth,
infrastructure charges may also increase community acceptance of growth (Burge, Nelson & Matthews,
2007).
Recent reviews and legislative changes

The Commissions review of infrastructure charges in its Housing affordability inquiry (2012) found that
properly structured and administered infrastructure charges help to manage overall infrastructure costs by
signalling to developers the costs of building in different locations. The Commission concluded that the
case for development contributions is strong. Linking payment made for some types of additional
infrastructure to the benefits received helps to ensure that investment reflects its opportunity cost and that
locational decisions are efficient (NZPC, 2012, p. 126).
However, the Commission also identified scope to improve the processes that councils use to set and
administer infrastructure charges, so as to reduce the cost of new residential developments and improve the
quality of decision making around infrastructure funding. The Government subsequently instructed the DIA
to review development contributions as part of the Better Local Government initiative (DIA, 2013c). The
review informed changes to development contributions that were included in the Local Government Act
2002 Amendment Act 2014.
The Amendment Act (s 179AA) introduced a new purpose statement, which explains that the purpose of
development contributions is to:
[e]nable territorial authorities to recover from those persons undertaking development a fair, equitable
and proportionate portion of the costs of capital expenditure necessary to service growth.
Principles setting out when development contributions can be required, how they should be calculated and
when they should be used were introduced to accompany the new purpose statement. The objectives that
the changes sought to achieve included:
greater direction about what councils can use development contributions for and how they should be
applied;
focusing development contributions toward infrastructure required by development, and avoiding

charges for infrastructure that is not directly needed to service the development;
introducing a process that allows developers who believe they are being charged incorrectly to
challenge the charge through an independent commissioner; and
greater transparency about how development contributions are being used (DIA, 2014b).
While some inquiry participants felt that it was too soon to comment on the effect of these changes (for
example subs. 10 and 66), several submissions note that the amendments have reduced councils ability to
facilitate growth:
Recent amendments to the LGA to reduce the purpose of Local Government and minimise what DCs
can be used for has further constrained TLAs ability to fund and provide good quality new housing
areas. (A L Christensen, sub. 7, p. 2)
Where they [changes to development contributions introduced in the LGA Amendment Act 2014] are
having an effect is where it has become too costly for a Council to provide the necessary associated
infrastructure out of rates income it is probable that it will result in some residential development
applications being turned down. (Auckland District Council of Social Services, sub. 22, p. 6)
The recent changes to development contributions, reducing the range of infrastructure that can be
included will shift this portion of costs to ratepayers and is therefore a subsidy to development. (Greater
Christchurch Urban Development Strategy, sub. 18, p. 8)
Other inquiry participants raised concerns about development contributions. Most concerns are similar to
those raised with the Commission in 2011 and relate to issues such as overcharging, double-dipping, a
lack of transparency, complexity of development contributions policies and unjustified increases in the
amount charged:
A lack of transparency has allowed territorial authorities to double dip, for instance, by collecting
capital income from existing users (such as depreciation collected through rates or user charges) for the
express purpose of contributing to replace ageing assets, only to then charge the costs of infrastructure
(particularly replacement) onto growth related development. (Property Council New Zealand, sub. 33,
p. 18)
In most areas development contributions have increased by more than 300% in the last 10 years. (Mike
Greer Homes, sub. 48, p. 4)
Developers believe DC [development contributions] calculations lack transparency, science, or a fair
estimate of the value of new infrastructure to existing households. (Registered Master Builders &
Construction Strategy Group, 2015, p. 11)
Developers are not happy with the financial contributions scheme, its payment methodology and
explanations of where and when the money is used. (Lindsay, 2015)
One of the more significant aspects of the LGA amendments was the introduction of a process that enables
development contributions to be challenged if they are seen as excessive (Box 7.4).
Box 7.4
Objection process for development contributions
The 2014 LGA Amendment Act introduced two mechanisms that allow a person to challenge the nature
of development charges.
Under the first mechanism, territorial authorities are obliged to reconsider development contributions if
this is requested:
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(1) If a person is required by a territorial authority to make a development contribution under

section 198, the person may request the territorial authority to reconsider the requirement if the
person has grounds to believe that
(a) the development contribution was incorrectly calculated or assessed under the territorial
authoritys development contributions policy; or
(b) the territorial authority incorrectly applied its development contributions policy; or
(c) the information used to assess the persons development against the development
contributions policy, or the way the territorial authority has recorded or used it when requiring a
development contribution, was incomplete or contained errors. (LGA, section 199A)
The second mechanism to objecting to a development contribution is set out in s 199C of the LGA.
This section states that any person who has been provided with a notice of a requirement to pay a
development contribution may object to the amount that a territorial authority has assessed as being
payable. A register of independent commissioners has been appointed by the Minister of Local
Government, and these commissioners are responsible for considering objections. Once a territorial
authority is in receipt of an objection, it must, as soon as practicable, select up to three development
contributions commissioners to decide the objection.
Source:
DIA, 2014c.
At the time of writing, four formal objections had been lodged but none of these objections have gone
through the full process. Two of the objections were resolved through voluntary mediation, while the other
two were put on hold while other matters, including an RMA appeal, are decided.
The ability to lodge objections has only been in place for a short time (since December 2014). However,
given the persistent complaints about development contributions it is surprising that so few formal
objections have been lodged. One possible explanation is that the introduction of the objections process
has resulted in a behavioural change, with councils paying greater attention to the content and justification
for their development contributions. Alternatively, developers may feel that they do not have sufficient
grounds to challenge infrastructure changes; or other barriers might exist that deter developers from
lodging a formal objection.
Q7.2
Are there any barriers that are preventing developers from challenging development
contributions?
Development contributions should reflect costs

Development contributions will only encourage efficient urban growth patterns if they reflect the costs of
different types of development. As discussed in the previous chapter, more sophisticated asset management
programmes can help councils to build a better understanding of these costs.
One of the changes introduced as part of the 2014 LGA Amendment Act is a set of new development
contributions principles (Box 7.5).
Box 7.5
Development contributions principles
Section 197AB of the LGA sets out a new set of principles that provide direction to councils about what
development contributions can be used for and how they should be applied:
(a) development contributions should only be required if the effects or cumulative effects of
developments will create or have created a requirement for the territorial authority to provide
or to have provided new or additional assets or assets of increased capacity
(b) development contributions should be determined in a manner that is generally consistent with
the capacity life of the assets for which they are intended to be used and in a way that avoids
over-recovery of costs allocated to development contribution funding
(c) cost allocations used to establish development contributions should be determined according
to, and be proportional to, the persons who will benefit from the assets to be provided
(including the community as a whole) as well as those who create the need for those assets
(d) development contributions must be used:
for or towards the purpose of the activity or the group of activities for which the contributions
were required; and
for the benefit of the district or the part of the district that is identified in the development
contributions policy in which the development contributions were required
(e) territorial authorities should make sufficient information available to demonstrate what
development contributions are being used for and why they are being used
(f) development contributions should be predictable and be consistent with the methodology and
schedules of the territorial authoritys development contributions policy under sections 106,
201, and 202
(g) when calculating and requiring development contributions, territorial authorities may group
together certain developments by geographic area or categories of land use, provided that
Source:
the grouping is done in a manner that balances practical and administrative efficiencies with
considerations of fairness and equity; and
grouping by geographic area avoids grouping across an entire district wherever practical
Local Government Act 2002, s. 197AB.
Application of these principles should go a long way toward ensuring that councils approach to
development contributions encourages efficient locational decisions. In particular, principle (g) suggests that
when calculating contributions councils may group together multiple developments by geographic area (eg,
developments in a certain stormwater catchment) or for certain categories of development. Principle (g)
discourages councils from applying uniform charges across an entire district because such an approach
would fail to recognise localised circumstances or characteristics that may materially increase or reduce the
cost of infrastructure requirements (DIA, 2014b). Principle (d) also implicitly reinforces the idea of a link
between the geographic location of development and the requirement for infrastructure.
Some submissions suggest that current development contributions do not accurately reflect different
infrastructure costs associated with different dwelling types:
New Zealand needs to build smaller dwellings on smaller sections. The size of Development
Contributions (DCs) requirements in some areas of New Zealand do not encourage development of
smaller dwellings. Excessive DCs increase the cost of sections and encourage developers to build larger
rather than smaller homes. (New Zealand Property Investors Federation, sub. 63, pp. 34)
Although it may require changes in legislation, development contributions calculated as a percentage of
cost or value could encourage the construction of smaller lower cost units. (New Zealand Housing
Foundation, sub. 69, p. 13)
Most councils vary development contributions depending on floor size, on the grounds that smaller
dwellings are likely to accommodate fewer occupants, and so are likely to put a lighter demand on some
types of upstream infrastructure. For example, Auckland Councils draft development contributions policy
has a variable household unit equivalent (HUE) depending on the size of the dwelling:
0.8 HUE per unit for dwellings up to 99m2;
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1 HUE per unit for dwellings between 100m2 and 249m2; and
1.2 HUE per unit for dwellings 250m2 and over (Auckland Council, 2015b).
While these unit of demand calculations do afford lower costs for smaller dwellings, some inquiry
participants suggested that they are not sufficiently nuanced, and that a 240m2 dwelling is likely to create a
significantly higher demand for services than a 110m2 dwelling (New Zealand Housing Foundation, sub. 69).
Councils that impose development contributions on the basis of HUEs should publish information about the
relationship between dwelling floor area and the cost of providing infrastructure services. This would be
consistent with the principle that sufficient information should be available to demonstrate what
development contributions are being used for and why. It would also help to ensure that development
contributions do not unduly restrict smaller or higher density dwellings.
R7.2
Councils should include information in their development contributions policy about the
relationship between dwelling floor area and the cost of providing infrastructure
services. If smaller dwellings impose lower costs on the infrastructure network, this
should be reflected in lower charges.
Leading practices in the use of development contributions

While development contributions remain a source of tension between councils and developers, it is too early
to assess whether the Local Government Act Amendment Act 2014 will address the underlying issues that
lead to these tensions. The Commission has, however, identified a number of good practices that some
councils have established that other councils should consider.
Deferral of payments
Development contributions can be charged when:
a resource consent is granted under the RMA;
a building consent is granted under the Buildings Act 2004; or
an authorisation for a service connection is granted (DIA, 2013c).
For residential developments, the first resource consents are usually for subdivision of land. In some cases,
substantial time can elapse between initial consents being granted (and development contributions
charged) and the developer receiving income from the sale of sections or houses. During this time the
developer may have to service loans taken out to cover the cost of development contributions or
opportunity costs associated with not being able to put that money to other uses (DIA, 2013c).
Although delaying the payment of development contributions is not mandatory, 41 some councils allow
flexibility around the timing of payments. This flexibility can make it easier for developers to finance
development. For example, Auckland Councils development contributions policy includes the following
provisions:
The council acknowledges the effect that early payment of contributions can have on the viability of a
development and aims under the policy to require the contribution to be paid later in the development
cycle without losing the ability to use statutory enforcement powers.
The council is mindful that a later payment profile will delay the income forecast for contributions and
increase the overall growth related borrowing cost that is included in the contributions price. The overall
effect of this increase is expected to be offset by the benefit to developers of aligning the payment of
contributions closer to the developments positive cashflow and thereby minimising their overall
borrowing costs. (Auckland Council, 2014a, p. 16)
The Development Contributions Working Group (DIA, 2013c) considered the option of delaying the payment of development contributions, but
ultimately decided against making this practice mandatory.
41
Several inquiry participants noted that deferral of development contributions payments can help to increase
the viability of development projects.
Keeping an open dialogue

Councils must publish a development contributions policy that sets out how contributions are levied. Case
law has established that charges can only be levied where a causal nexus can be established between the
development in question and the infrastructure required to support it:
[B]efore a development contribution may be required by the Council, there must be a development
and a direct causal nexus between that development and the demand for infrastructure it
generates. (Neil Construction Limited and others v North Shore City Council, 2001, p.40)
In practice, it can be difficult to accurately determine the causal nexus of every development, which can lead
to confusion as to what services are covered by development contributions (Registered Master Builders &
Construction Strategy Group, 2015). In an effort to avoid this problem, Tauranga City Council has
implemented discussions with developers about proposed development contributions before the
contributions are charged. This enables both sides to clarify how the contributions have been calculated and
to voice any differences of opinion. Several inquiry participants endorsed this approach:
Our experience with TCC [Tauranga City Council] is that they are open to reviewing and improving the
DCP [Development Contribution Policy] based on issues and feedback received by ourselves and others
in the local Development Community. (Te Tumu Landowners Group, sub. 40, p. 16)
Tauranga City Council provides opportunities to review whether charges are reasonable i.e. the council
provides sufficient detail to understand the charges. (Property Council New Zealand, sub. 33, p. 19)
F7.3
Tauranga City Council provides an opportunity for the development community to

review proposed development contributions, and will consider feedback on areas for
improvement. Inquiry participants have identified this approach as a leading practice.
Using targeted rates as an alternative to development contributions

The Local Government (Rating) Act 2002 allows councils to set targeted rates to fund activities that benefit
identifiable ratepayers. Like development contributions, targeted rates allow councils to charge the
beneficiaries of new infrastructure for their cost, but they differ in that the upfront costs of growth-related
infrastructure can be recouped over a longer timeframe.
A number of councils use targeted rates to fund various services or infrastructure investments (Box 7.6).
Box 7.6
Examples of targeted rates
Auckland Council levies targeted rates on a range of property categories, for a range of purposes,
including:
all properties that receive solid waste services;
construction of road access (Riverhaven Drive) to properties formerly only accessible by boat;
three properties that pay targeted rates to recover the cost of a floodgate restoration;
rural Waitkere properties that pay rates for the operation of on-site sewerage management
systems; and
properties that received financial assistance to connect to existing wastewater schemes (Kumeu
Huapai Riverhead, Point Wells and Jackson Crescent).
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In Tauranga City, properties in a number of subdivisions (The Lakes, Papamoa Coast and Excelsa) pay
targeted rates to operate the wider roads, and more numerous gardens, reserves and streetlights in the
area.
Wellington City Council maintains a number of targeted rates, including:
properties that are connected to the water, wastewater or stormwater networks; and
the maintenance of 41 private driveways in Tawa (a legacy from the Tawa Borough Council).
Christchurch City Council charges targeted rates for:
properties connected to on-demand water reticulation, restricted water supply systems, and
sewerage systems;
properties benefitting from land drainage that pay targeted rates to cover operating costs;
properties near new cycleway projects;
properties connected to the Governors Bay water and sewerage schemes (a legacy from the Banks
Peninsula District Council; ratepayers were able to elect to pay as a lump sum or over time).
Across the country many other councils have levied targeted rates to seal roads, improve streetscapes,
operate bus routes, construct water and wastewater facilities, or target ratepayers who are high users of
services.
Targeted rates sometimes have problems. For many years, owners of properties on the Weiti River side
of Whangaparaoa Peninsula that only had boat access agitated to have a road constructed. The road
was eventually funded via a targeted rates scheme, but construction costs ballooned. This meant that
instead of paying $3 000 a year over 10 years, ratepayers now have to pay $10 450 a year over 19 years.
Ratepayers can alternatively make a lump sum payment of around $115 000. Locals blame changing
regulatory requirements from the old Rodney District Council and Auckland Regional Council for the
cost blowout.
Source:
Thompson, 2012.
The Shand Report (2007) recommended that councils make greater use of targeted rates, noting that they
are more efficient, equitable and transparent than uniform charges or business differentials for general rates.
The New Zealand Housing Federation submitted that:
Typically, levies are charged as upfront payments which developers treat as a cost and [so then] increase
the price of a new dwelling. There are a number of other alternative approaches that could be
employed which may produce more affordable outcomes. For example, rather than collecting a levy
upfront a special rate could be charged across the properties benefiting from the new or upgraded
infrastructure which collects the cost of the asset over its effective life. This would reduce the initial cost
to the developer while still collecting the same infrastructure tax over time. (sub. 69, p. 13)
The Commission sees significant potential for targeted rates to be used more frequently to fund growthenabling infrastructure, so that the cost is borne by the end beneficiaries of the investment, and able to be
spread over a long timeframe.
F7.4
Considerable scope exists for councils to increase their use of targeted rates in order to
recoup the costs of growth-enabling infrastructure over a longer timeframe.
Targeted rates are similar to TIF and MUDs in that they allow the cost of infrastructure investments to be
funded by council debt, and repaid by homeowners over a longer period of time, rather than the developer
or council paying for the infrastructure upfront. However, unlike MUDs, they cannot be initiated by a
developer without the agreement of the council.
Chapter 6 discusses recent legislative changes that give more profile to developer agreements to construct
infrastructure, and that require councils to consider and respond to requests from a developer to enter such
an agreement. The Commission considers that parallel provisions should be enacted that would allow a
developer to request the construction of infrastructure by the council, and the imposition of targeted rates
on the land in question by the council to recover the costs of the infrastructure construction.
R7.3
7.6
The Local Government Act should be amended to make clear that developers may
formally request that councils construct growth-enabling infrastructure, to be repaid
through targeted rates on the properties that benefit from the infrastructure
connections, and obliging Councils to consider such requests.
Conclusion
The costs associated with urban infrastructure appear to be rising and many high-growth councils report that
the cost of new infrastructure has a major influence on the rate of residential development.
Well-informed investment decisions and effective use and management of existing infrastructure assets are
important steps in ensuring that council infrastructure is able to respond to growth pressures (Chapter 6).
Having effective processes in place to recover infrastructure costs from the parties that benefit from the
investment also matters.
Councils are able to raise debt finance for infrastructure from a range of sources. Borrowing enables councils
to deliver infrastructure when it is most needed and promotes intergenerational equity. While council debt
levels can be a source of political angst, instances of poor financial management are relatively uncommon.
Recent reviews of council debt have not identified any issues with the use of debt by high-growth councils.
Recent legislative changes have introduced a debt-servicing benchmark. Many high-growth councils are well
within that benchmark, yet some are approaching the upper limits. The effect of this benchmark should be
monitored over the coming years, with particular consideration of how it influences the ability of high-growth
councils to roll out the infrastructure needed to accommodate growth.
Alternatives to debt financing that are commonly used in other countries such as TIFs and MUDs, appear to
be poorly suited to the New Zealand context. The benefits associated with these funding approaches could
largely be captured through greater use of targeted rates.
Development contributions are a particularly important source of funds for infrastructure. Despite recent
changes to the LGA that sought to clarify the purpose of development contributions and introduced limits
on the types of infrastructure they can be used to fund, development contributions remain a source of
tension between developers and councils. However, development contributions are the primary way that
councils recover growth-related infrastructure. This means that any further limits on development
contributions runs the risk of negatively affecting council incentives regarding the provision of growthrelated infrastructure.
Councils should ensure that their development contributions policies are aligned with new principles
introduced in the 2014 Local Government Act Amendment Act 2014 so as to encourage efficient choices
about the location and type of developments. Policies that enable flexibility around the timing that
development contributions are charged, and transparent review of the method by which they are set, have
been identified as leading practices.
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Governance of transport and water

infrastructure
Key points
A feature of the governance arrangements for transport infrastructure is the significant role that
central government plays, through the New Zealand Transport Agency (NZTA), in both a planning
and funding capacity. NZTA is also responsible for funding and managing the state highway
network so has a strong interest in how urban growth affects the demands on the state highway
network. In some instances, this can come into conflict with the development of land for housing.
Including a greater focus in NZTAs investment priorities on how transport infrastructure can
support land supply for housing might help to free up land supply in high-growth cities. Shifting the
priorities for land transport funding could have implications for existing transport priorities.
Because councils or Council Controlled Organisations (CCOs) are the only providers of water
services in New Zealand cities, they are monopoly providers in their area. As such, they are subject
to a number of issues and incentives that can hinder their ability to respond to demands for water
services to support urban growth.
Reform of water services in other countries has centred on exploiting economies of scale and
introducing commercial disciplines. This is often done in combination with reform of regulatory and
institutional frameworks to balance commercial with public and environmental objectives, and can
include regulation over access and the price of services. Even so, urban water systems have merit
good aspects and wastewater and stormwater management has public good aspects that need
to be considered in funding arrangements.
Many councils may be too small to exploit economies of scale in water supply and wastewater
treatment. The Commission is seeking feedback about whether taking advantage of scale
economies in the delivery of water services could improve the capacity of councils to deliver water
services more efficiently to support urban growth.
Serious weaknesses have been identified in the water sectors regulatory and institutional
framework. Addressing these weaknesses would improve the performance of the sector in general
and could contribute to urban growth through improving the way water infrastructure is delivered.
The Commission is interested in further feedback from inquiry participants about the potential for
the reform of the regulatory and institutional framework for water to support urban growth.
The accountability arrangements for Aucklands CCOs (Auckland Transport and Watercare) are not
currently aligned with Auckland Councils objectives to increase the citys supply of dwellings. This
should be addressed by adding performance measures to CCO statements of intent relating to the
efficient rollout of new infrastructure to support an increased supply of new dwellings.
Watercare imposes an Infrastructure Growth Charge (IGC) on all new developments connecting to
Watercares network. The IGC is a flat charge, which is applied across Auckland. This is likely to
distort development costs, reduce transparency over how the IGC is being used, and discourage
the development of dwellings with lower infrastructure costs. The IGC should be changed to better
reflect local factors that materially affect the cost of installing new infrastructure.
The checks and balances that apply to development contributions can effectively be by-passed if
responsibility for certain infrastructure services is delegated to a CCO. The Commission is
interested in receiving further information about whether the existing checks and balances that
apply to Watercare are sufficient.
Chapter 8 | Governance of transport and water infrastructure
This chapter begins by mapping the governance arrangements for transport and water infrastructure
(sections 8.1 and 8.2). The chapter then examines the recent trend toward delegating responsibility for
transport and water infrastructure to CCOs (section 8.3). Section 8.4 responds to some specific issues around
how Watercare, Auckland Councils CCO for water, recovers the costs associated with urban growth.
8.1
Transport infrastructure
Territorial authorities, regional councils and central government are the three main players involved in the
governance of transport infrastructure. As set out in Chapter 6, through the Government Policy Statement
(GPS) on Land Transport, central government sets the overall objectives and results sought for the transport
network over a 10 year timeframe. NZTA then develops a 3-year National Transport Programme that gives
effect to the GPS and outlines the activities that will receive funding from the National Land Transport Fund.
These activities are selected from proposals included in Regional Transport Plans. Regional Transport Plans
are developed by regional transport committees that include representatives from the relevant regional
council and territorial authorities.
As an example of how these arrangements work in practice, Table 8.1 sets out the different actors that are
responsible for transport functions in the Wellington region. While arrangements are broadly similar in other
high-growth areas, the allocation of responsibilities sometimes varies. For example, in Auckland the CCO
Auckland Transport performs the combined role of regional and territorial authority land transport functions.
Table 8.1
Responsibility for land transport functions in Wellington
Function
Primary
Responsibility
Comments
Strategic planning
Regional
The Regional Land Transport Plan is prepared by the Regional

Transport Committee, which is made up of representatives from
Greater Wellington Regional Council (GWRC), territorial authorities,
and NZTA.
Public transport
services
Regional
Planning and procurement of bus, rail and ferry services is undertaken

by GWRC. Rail services are provided under contract by KiwiRail, and
bus and ferry services are under contract to private providers.
Rail infrastructure
National (KiwiRail)
KiwiRail owns and maintains rail infrastructure as part of the national

rail network.
Other public transport

infrastructure
Regional and
Territorial
GWRC owns or controls railway stations, park and rides, and major
off-street interchanges. Other public transport infrastructure (such as
bus stops) is located within the road reserve, and is the responsibility
of territorial authorities.
State highways
National (NZTA)
NZTA operates Wellingtons motorways and state highways as part of

the state highway network.
Local roads
Territorial
All roads other than state highways are the responsibility of territorial
authorities.
Walking and cycling
Territorial
Most walking and cycling infrastructure is the responsibility of

territorial authorities.
Travel demand
management
Regional and
Territorial
GWRC plans, promotes and provides training for travel planning

programmes, while territorial authorities are responsible for
implementation.
Source:
CityScope, 2014.
As discussed in Chapter 3, the planning requirements under the Land Transport Management Act are part of
a complex web of plans that can be difficult for councils to coordinate. A number of inquiry participants
raised concerns about the extent to which the different legislative planning frameworks and timeframes
promote integrated decisions about land use, infrastructure provision and transport services. As part of a
strategy to address this, the Commission has recommended developing a new planning avenue for larger
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cities that combines transport planning with longer-term infrastructure strategies and the development of
land use rules.
Some inquiry participants also identified issues relating to the coordination between local government and
NZTA.
Coordination between councils and NZTA

A feature of the governance arrangements for transport infrastructure is the significant role played by central
government both in a planning capacity and as a funder of local transport infrastructure. For 2015, $3.4
billion of funding from the National Land Transport Fund will be invested in local roads (Ministry of
Transport, 2014). As shown in Figure 7.4 and Figure 7.8, this is a significant share of total local government
funding and amounts to around 50% of the funding for local roads.
In addition to its involvement in local transport infrastructure, NZTA is also responsible for funding and
managing the state highway network, and so has a strong interest in how urban growth affects the demands
on the state highway network. The strong links between transport and land use are described in NZTAs
submission:
Land-use and transport are fundamentally linked, with transport facilitating the movement of people and
goods that enables the interactions and transactions that support our communities and the economy.
How land is released for urban development will influence the Agencys [NZTAs] ability to optimise its
investment from the National Land Transport Fund (NLTF) and deliver a safe, accessible and efficient
transport system that provides for New Zealands social, cultural and economic well-being. (NZTA,
sub. 73, p. 4)
Several high-growth councils acknowledged the significant investment that central government makes in
local road networks (eg, Tauranga City Council, sub. 47). Inquiry participants also commented that the NZTA
model brings discipline and a degree of national consistency to transport infrastructure planning and
management.
NZTA reports that it has invested significant time and resources in developing and implementing spatial
plans, including SmartGrowth (greater Tauranga), Future Proof (greater Hamilton), Urban Development
Strategy (greater Christchurch), and The Auckland Plan. This has enabled NZTA to gain certainty around the
form of future development, and the timing and location of new transport infrastructure needed to support
that growth (NZTA, sub. 73, p. 8).
Given that land use and transport are fundamentally linked, the early involvement of NZTA in spatial
planning is a good practice. However, despite NZTAs involvement in the SmartGrowth strategy for the
greater-Tauranga area, both Tauranga City and Western Bay of Plenty District raised concerns about
difficulties integrating with the state highway network:
The main difficulties we have experienced occur where integration with the State Highway network is
requiredparticularly with regard to obtaining access to and use of the network. (Western Bay of Plenty
State Highway investment remains one of the biggest challenges to growth management in Tauranga.
(Tauranga City Council, sub. 47, p. 21)
These concerns appear to stem primarily from contrasting sets of incentives. NZTA is responsible for giving
effect to the government of the days GPS on land transport. The GPS is released every three years and
outlines the governments strategy to guide land transport investment over a 10-year timeframe. As such,
the GPS underpins NZTAs investment decisions.
The three main priorities of the current GPS are economic growth and productivity, road safety, and value for
money. The GPS does make reference to accommodating growth in Auckland:
An Auckland transport network that is working well is crucial to improving the contribution that the city
can make to New Zealands economic growth and productivity. This includes addressing associated
needs such as a responsive housing supply and improving energy efficiency. Increased demand for
travel arising from population growth also needs to be accommodated at an acceptable price.
(Government Policy Statement on Land Transport, 2014, p. 17)
But, as noted in NZTAs submission, investment to support the release of land for housing is not a primary
focus in the GPS:
[T]he National Land Transport Fund (NLTF) is a finite funding source and therefore the Agency needs to
demonstrate value for money while also giving effect to the government of the days Government Policy
Statement on Land Transport (GPS). The current GPS priorities for investment include support for
economic development and road safety. A change of direction to focus investment on the release of
affordable land would likely result in a different investment portfolio. (NZTA, sub. 73, p. 5)
Inquiry participants reported that NZTA responds faithfully to the priorities that are set for them in the GPS.
But, in some instances this comes into conflict with the development of land for housing. Box 8.1 provides
one example of how this plays out in practice.
Box 8.1
Construction standards for the Papamoa East interchange
Tauranga City Council has recently rezoned over 300 hectares of land for residential, industrial and
commercial development in Papamoa East. The land is bordered on the south by the Eastern Link
motorway a $455 million highway due for completion in 2016.
In order to unlock large areas of land for housing in Papamoa East, a new interchange will need to be
built on the Eastern Link motorway. The construction standard for this interchange epitomises the
competing interests that can emerge between NZTA and local governments.
From NZTAs perspective, the primary objectives for the Eastern Link motorway are:
safer and easier travel;
reduced travel times between Tauranga and Paengaroa;
more efficient connections for business, industry and tourism; and
supporting regional employment and economic growth (NZTA, 2015).
To protect the travel time savings and safety of the motorway, NZTA requires that the Papamoa East
interchange is built to a high standard (grade separated) at an estimated cost of between $20 million
and $25 million.
In contrast, Tauranga City Council has suggested that a lower-specified interchange (ie, a roundabout)
could be built at significantly lower cost. Its submission suggests that the standards set by NZTA are
unnecessarily high:
A further issue that TCC [Tauranga City Council] faces are the financial consequences of what we
believe are unnecessarily high levels of service sought by NZTA for much of the State Highway
network in and around Tauranga. We dont believe that these levels are sustainable or
affordable The outcome of these types of levels of service include things like having to build
grade separated interchanges to connect local roads to the State Highway network at a cost of 2
to 3 times more than a roundabout would cost. (Tauranga City Council, sub. 47, pp. 2122)
The Commission understands that NZTA and Tauranga City Council are working to resolve issues relating to
access to Papamoa East, but while NZTA and local authorities are pursuing different priorities it is likely that
similar issues will continue to emerge. Because the National Land Transport Fund is a finite resource, tradeoffs are required in how and where it is used. One option available that would help high-growth areas to
increase the supply of land for housing is to amend the GPS to include a greater focus on the supply of land
for housing particularly in areas of short supply. This would require a change in priorities and a
reassessment of the trade-offs between the relative importance of land supply versus competing objectives
such as the efficiency of freight transport.
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F8.1
The Government Policy Statement on Land Transport includes relatively weak reference
to land supply for housing. A stronger focus on how transport infrastructure can support
land supply for housing would change NZTAs investment priorities and might help to
free up land supply in high-growth cities. However, shifting the priorities for land
transport funding could have implications for existing priorities.
Do other transport governance issues exist?

Notwithstanding the issues raised above, submissions to this inquiry contained little in the way of comment
or criticism about the governance arrangements for transport. The Commission is interested in further
comment, particularly from councils and developers, about potential improvements that could be made to
the governance arrangements for transport infrastructure.
Q8.1
8.2
What other issues, if any, relating to the governance of transport infrastructure should
the Commission be aware of?
Water infrastructure
The governance arrangements for water are much more devolved than they are for transport infrastructure.
As outlined in Chapter 2, local governments involvement in the provision of water works and sewers is
well documented (Box 2.2). The Commission has attempted to research central governments historical role
in urban water infrastructure, but good information is lacking. Greater Wellington Regional Councils 2007
history Our water history on tap is one exception (Box 8.2).
Box 8.2
History of water supply in the Wellington region
Since Wellington had been founded water had been collected from house-tops into barrels and
iron tanks, and also some shallow wells.
Early schemes were the result of entrepreneurial individuals, and financed in an ad hoc way:
The first reticulation in the city was initiated by the Provincial Government, to supply shipping at
Queens Wharf. In 1867 Messrs John Beck and Carter tunnelled through the Hill Street ridge to a
spring on Tinakori Road and planned to lay pipes to the wharf The city, however, picked up the
work laying pipes to the governments reservoir built on Hill Street beside the Meteorological
Office. (p. 5)
But not all schemes were seen as worthwhile enterprises:

When, in August, Wellingtons ratepayers found that the Town Board had entered into the
expensive scheme with Robert Marchant, their indignation boiled over. Why spend on waterworks
when every occupier of his cottage had a well? The availability of the Hill Street supply also
discouraged the scheme being adopted. Wellingtons Waterworks Company was, however,
established and its shares secretly issued, but it played no part in the scheme adopted. (p. 6)
The history of water supply in Wellington is interesting throughout. It has always been a central concern
for local government in the region, and the scale of investment a source of frustration to ratepayers,
with a litany of embarrassing failures and engineering triumphs.
However, the largest scheme in Wellingtons history, to take water from the Hutt River (now known as
the Kaitoke scheme), was financed by central government and undertaken by the Ministry of Works:
Bob Semple, Minister of Works and past-master in waterworks projects, drove the effort for a new
scheme. In February 1943, Semple asked for information on potential water schemes to supply
15,000 houses in the Porirua basin. In supplying the information, the board sensed the offer of
government money and omit[ed] references to the economics of construction, that it cannot be
justified on economic grounds The Government endorsed the boards proposal and agreed to
fund the Hutt River scheme (the cost being 1.1 million excluding service reservoirs and branch
lines), but then to hand over the works on completion to the Wellington City Council, to operate
on behalf of the [Water Supply] Boards members. (p. 23)
Source:
Greater Wellington Regional Council, 2007.
Today, water infrastructure which includes drinking or potable water supply, wastewater treatment and
disposal and stormwater management is the responsibility of local government. Most councils deliver
water infrastructure through in-house business units and fund it through a mix of rates and development
contributions. In Auckland and some parts of the greater Wellington area, CCOs have been established to
manage water services these arrangements are examined in more detail in the following section.
Local Government New Zealand (LGNZ) notes that no one central government agency has a lead role in
water policy but that Treasury (through the National Infrastructure Unit), Department of Internal Affairs,
Ministry for the Environment, Ministry for Primary Industries, Office of the Auditor-General (OAG), and others
all have an interest in how the sector performs (LGNZ, 2014, p. 5). Central government does not make a
significant contribution to urban water infrastructure in high-growth areas. However the Ministry of Health
manages the Drinking-water Assistance Programme, which includes subsidies to help small rural
communities to establish or improve their drinking water supplies.
Wellington City Council submitted to the inquiry that there should be a contestable national fund to enable
public/private partnerships and/or local and central government delivery of 3 waters strategic infrastructure
(wastewater, stormwater, water) and affordable housing (sub. 21, p. 15). Many other submissions suggested
that central government should play a more proactive role in funding infrastructure in high-growth areas,
without making specific reference to water infrastructure (subs. 25, 27, 39, 40, 42, 45, 47, and 54).
Local public provision

As set out in Chapter 6, councils face relatively weak incentives to proactively develop infrastructure to
accommodate urban growth. Inquiry participants reported that this problem is particularly acute for water
infrastructure, with some developers suggesting that connections to the water network are rationed.
These issues appear to be more acute in the water industry as opposed to other network utilities such as
power and telecommunications, which also have the characteristics of natural monopolies. Box 8.3 considers
the characteristics that lead to water infrastructure being provided in New Zealand, as in many other
countries, by local public monopolies. It also explores some of the natural characteristics that differentiate
water from other utilities such as electricity and telecommunications.
Box 8.3
Urban water systems
Urban water systems exhibit strong natural monopoly characteristics.
There are high capital costs associated with providing infrastructure for the collection, storage and
or treatment of water (both drinking water and wastewater) to acceptable standards of quality.
Fixed costs are very high in comparison to variable costs (more than 70% for urban water supplies in
the United Kingdom).
The system for delivering clean water and receiving wastewater is typically a network with large
scale economies.
Water, due to its weight, is expensive to transport either above or below ground. Water transport
costs for every 100 km represent about 50% of the wholesale cost of water in the UK, compared to
5% for electricity and 2.5% for gas. As a result, water tends to be sourced and treated/disposed of
locally.
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There are a number of characteristics that have led to urban water systems being developed under
public provision.
There are few substitutes for urban water services.
The provision of safe drinking water and the disposal of wastewater have strong, positive
externalities, for both people (public health) and the environment.
The provision of urban water services is a merit good in the sense that society considers these
services to be important, irrespective of individuals ability to pay.
Wastewater management has public good characteristics in that, once it is provided, many
members of society benefit. At the same time, it is difficult to exclude individuals from enjoying the
benefits of a cleaner, healthier environment once the decision has been made to collect and treat
all wastewater in a community.
Water and sanitation projects are usually capital intensive they involve high initial investment and
long payback periods. The resulting infrastructure is very specific, largely invisible and cannot be
used for other purposes.
Unregulated, privately run, natural monopolies would typically under-provide the right quantity and
quality of the good or service, and at a higher price than is required to cover the costs of provision in
the long run.
Source:
Gee, 2004; Hanemann, 2006; Manso, 2007; OECD, 2009; Wichelns & Qadir, 2015.
Ideally, water infrastructure should be affordable and efficient, ensure security of supply over the short-term
and long-term, to acceptable standards of environmental and public health protection, and provide equity
of access to existing and new dwellings through the provision of infrastructure with sufficient capacity.
While unregulated privately run natural monopolies are unlikely to meet these requirements, local public
monopoly provision has its own well-recognised problems. The combination of market power and public
ownership can lead to concerns such as those noted below.
An inability to exploit economies of scale in water supply and wastewater treatment. This can arise due
to the way in which individual councils have provided water services in the past. There may be few
incentives to consider alternative mechanisms for delivery that can capture some economies of scale or
scope.
Water not being treated as an economic good. Some councils do not price water to encourage
conservation and efficient use of the resource, and incentives to protect water sources may be weak.
Unclear conditions of supply. The relationship between customers and the local authority can often be
administrative rather than one based on explicit terms and conditions between the parties (Water
New Zealand, 2011).
Weak incentives to minimise supply costs. This may enable suppliers to seek an easy life rather than
pursue productivity improvements or opportunities to increase revenue. Suppliers that behave in this
way might have higher costs structures and/or be slow to service new developments, even when this
could lead to increased net revenue. Either approach would hold back the supply of new serviced land
for housing.
Financial problems. This can be caused by ageing infrastructure that may have been poorly maintained,
combined with the higher costs from increasing environmental and health standards. Financial problems
and ageing infrastructure can also be the result of poor pricing or funding decisions in the past that did
not allow for sustainable investment in maintaining the infrastructure or building future capacity.
Weak accountability. Some councils combine monopoly ownership, governance, management, pricing,
customer representation and some regulation of water services, leading to unclear accountability for
access to, and the efficient delivery of, service (Water New Zealand, 2011).
Failures of public management. This can result from a lack of financial or technical capability, an inability
to raise customer charges for water to the level required to implement cost recovery, and susceptibility
to political interference in the management of the water system, including pricing decisions (see next
point).
Non-transparent, inefficient pricing. Monopolies entail the risk that prices will exceed the price of supply.
For example, Councils might over-charge for water services, particularly if their other revenue sources are
under pressure. They could double dip, by seeking to earn a return from their customers on assets that
developers have gifted to councils. Or they might charge excessive prices for access to trunk
infrastructure. Alternatively, public provision could lead to prices that do not meet the costs of supply,
resulting in cross-subsidisation or under-investment, in some cases due to politicisation of pricing.
According to Water New Zealand (2011, p. 14), council decisions are dominated by the political
imperative to keep rates down. If a perception exists that the costs of growth may not be fully
recovered through development contributions, then councils will face an incentive to under-supply
growth-related infrastructure and defer maintenance of long-lived assets. Either approach could reduce
the viability of some new urban developments.
Many of these issues are found in the provision of water and wastewater treatment services by local public
monopolies. They have led to reforms of urban water systems in other countries (Manso, 2007). Two main
characteristics of such reforms have been to:
Exploit economies of scale. This is achieved by consolidating provision across larger geographic areas.
Introduce commercial disciplines. This can be done while retaining public ownership of infrastructure
through mechanisms such as increased autonomy of management entities, the unbundling of networks
(ie, a separation of water production from distribution, and wastewater collection from treatments),
greater involvement of the private sector in specific aspects of the business (eg, through service
contracts for management), and a shift from cross-subsidisation to cost recovery based on principles of
network pricing.
Commercial disciplines are often accompanied by:
Greater clarity around the regulatory and institutional framework. This includes an explicit balancing of
public and environmental objectives, the use of regulation to ensure access to services and quality, and
price regulation.
The question of whether there are opportunities to take advantage of economies of scale in New Zealand,
and whether improvements in the regulatory and institutional framework could improve the capacity of
councils to deliver water and wastewater services more efficiently to support urban growth, are discussed
below. This chapter also discusses whether these measures, especially attempts to fully cost-recover water
services, can ensure an optimal supply of water infrastructure in growing urban areas.
Taking advantage of economies of scale

While Watercare supplies 1.4 million customers in Auckland, many councils are too small to exploit
economies of scale in water supply and wastewater treatment (Water New Zealand, 2011; IPENZ, Ingenium,
& Water New Zealand, 2013; PwC & GHD, 2012; Local Government Infrastructure Advisory Group, 2013). This
suggests that there are unexploited opportunities to reduce water costs.
Water New Zealand (whose members include territorial local authorities, CCOs, water and wastewater
service providers, major consultancies and Crown and other research institutes) summarises management of
the sector as follows:
The management of what many consider to be one of our most critical and valuable resources rests with
707 territorial councillors, 67 mayors, 11 regional chairs and 116 regional councillors. Collectively this
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structural arrangement employs 25,000 staff, although it is difficult to determine exactly how many are
directly involved in water management. This, by any standards, is a highly fragmented management
arrangement and is at variance with the approaches taken to water management in similar jurisdictions.
(sub. 30, p. 3)
The Local Government Infrastructure Advisory Group (2013) identified three main options for achieving the
benefits of scale and scope:
shared services with other councils or, where relevant, other agencies (eg, central government, Iwi or
non-governmental organisations);
regional delivery; or
council amalgamation.
The Advisory Group recommended that councils should consider consolidating delivery of water and
treatment of wastewater across larger geographic areas, with the management and implementation of such
delivery at arms length from political decisions, through either a jointly owned or regional CCO, or a
business unit run on economically efficient lines. This approach has parallels with the approach to water
infrastructure in the Wellington area, where responsibility for three waters services has been delegated to a
CCO that is jointly owned by five local authorities in the Wellington region (although assets are still owned
by the authorities separately).
However, the OECD (2009) has questioned whether economies of scale are important in all water services.
Importantly, the optimal scale for drinking water and complex wastewater treatment may be different from
the one that best fits stormwater management:
It may therefore be relevant to unbundle and recombine water services in ways that make optimal use of
scale and scope effects. (OECD, 2009, p. 109)
The OECD also notes that economies of scale only accrue to a certain point, after which diseconomies may
emerge.
Q8.2
Are there significant scale economies in the provision of water infrastructure that could
improve the efficiency of provision that are not being realised in New Zealands highgrowth cities?
Improving the regulatory and institutional framework

A number of commentators have identified weaknesses in the water sectors regulatory and institutional
framework that could be improved.
In the 2011 National Infrastructure Plan, the National Infrastructure Unit concluded that:
Of all the sectors analysed in this Plan, the management, regulatory settings and governance relating to
water infrastructure will require the most attention in the next three years. (2011, p. 39)
Water New Zealand (2011) considers that the regulatory system has many flaws, including:
there are 17 Acts that relate to water management, and many other out-dated Acts and Regulations
[that] impinge on water policy and management;
a complex legal framework that imposes obligations on councils (that differ between water and
sewerage), complicates alternative service provision options, and is poorly understood;
the absence of a Water Act; and
compliance with drinking water standards that is voluntary (except that the Fair Trading Act or Consumer
Guarantee Act may impose a fitness for purpose test).
The Local Government Infrastructure Advisory Group (2013) considers that the complexity and diversity of
responsibilities for the framework makes oversight and planning of infrastructure difficult noting that the
complexity surrounding drinking water (is) so great that it would be a challenge for most people to fully
understand unless they are an expert (2013, p. 65). The group suggests that a clear need exists to achieve a
greater degree of integration and clarity within the statutory and legal frameworks for water supply,
wastewater and stormwater.
Q8.3
Would greater integration and clarity within the statutory and legal frameworks for water
supply, wastewater and stormwater assist councils in providing the water infrastructure
necessary to support urban growth?
Economic regulation
If the provision of water and wastewater services is to be subject to commercial imperatives in an effort to
make the provision of services both more efficient and more responsive to demand, regulation may be
required to ensure sufficient investment for future capacity and that water prices appropriately reflect the
cost of provision. Regulation may also be needed to ensure quality standards.
In Australia, all states have independent economic regulators of the water sector; water utilities are licensed;
and there are independent dispute resolution processes. Volumetric charging for water is widespread and
well-established in Australia and there are a variety of approaches to price regulation, including regulators
setting prices, price monitoring, and local government utilities setting their own prices under guidelines set
by state governments.
There is some debate about the role of economic regulation. For example, the Australian Productivity
Commission (APC) has suggested that regulators should move away from price regulation towards price
monitoring, and rely more on public owners, operating as active shareholders, to manage issues such as
those identified above.
However, this recommendation was based on the premise that governments would make significant
improvements to their governance frameworks, including:
clarifying and prioritising objectives;
clarifying the roles and responsibilities of governments, utilities, regulators and consumers;
the legal incorporation of any utilities not embedded within local governments;
a charter between the government and utilities, to guide pricing, procurement of supply and financial
performance;
public reporting of performance against the charter;
periodic public review of performance against the charter, with sanctions for poor performance (APC,
2011b).
The Australian experience indicates that the case for economic regulation should not be considered
independently of the quality of the governance framework within which the water sector operates. This view
is also present in policy discussions in New Zealand.
Water New Zealand (2011) believes that external regulation and price control is needed to improve sector
performance, and also supports wide-ranging changes to governance. The Royal Commission on Auckland
Governance recommended a relatively light-handed regulatory approach for Watercare (Box 8.7). The
Local Government Infrastructure Advisory Group, on the other hand, was not convinced about the need for
price regulation, proposing instead that the government should strengthen governance by establishing a
disclosure regime for water applying to CCOs, council business units and other modes of delivery. The
advisory group suggested that the OAG should monitor this reporting and the government should be
prepared to consider further measures should the need arise in the future.
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However, if Water New Zealand is correct that reform of water governance has been on the public policy
agenda for a decade, this signals that governance reform is very difficult to achieve and makes it more likely
that external regulation has an important part to play.
Q8.4
Does a case exist for introducing access, quality and price regulation for water services
in New Zealand?
Funding of water infrastructure

Improving the efficiency of delivery of water infrastructure in New Zealand through exploiting economics of
scale, introducing commercial principles (including a shift to full cost recovery based on principles of network
pricing), combined with improving the regulatory and institutional framework surrounding water
infrastructure might not ensure an optimal supply of water infrastructure.
The OECD notes that the issue of who should pay for water services remains difficult. The benefits of water
services (or the costs through a lack of water services) do not necessarily accrue to the users of the service or
to the party that pays for this service (p. 27) (Box 8.3, Table 8.2).
Table 8.2
Public good characteristics of water services

Excludable
Rival
Nonrival
Private good
Free access or common pool good
(eg, drinking water supply)
(eg, groundwater aquifer when individual pumping

for irrigation is not monitored)
Club good (non-rival until a saturation threshold is

reached)
Public good
(eg, networked services, with the threshold linked with

the capacity of the system; recreation use of a water
body, if monitoring of access is feasible)
Source:
Non-excludable
(eg, wastewater treatment, flood management,

resource and ecosystem protection, hydrological
monitoring, stormwater drainage)
Adapted from OECD, 2009, p. 25.
Due to the inherent difficulties in supplying water services, central or state governments in other jurisdictions
contribute to the management and funding of water infrastructure in a variety of ways.
State governments play a significant role in Australias water infrastructure. The supply of water and
wastewater services to most of urban Australia is largely undertaken by state government-owned water
authorities that operate as regulated monopoly businesses. Distribution services are provided under a
variety of industry structures and with different mixes of state and local government ownership (PwC, 2010).
For example, in South Australia, Western Australia, the Northern Territory and the Australian Capital
Territory, urban water services are provided by vertically integrated state/territory-owned suppliers for an
entire state or region. In Sydney, Melbourne and South East Queensland, there is vertical separation of the
bulk harvesting and supply functions from the distribution and retail functions. And in regional New South
Wales and Queensland, state-owned utilities provide bulk water while local government generally provides
urban water services beyond the bulk supply point (PwC, 2010).
In addition, state funding of so-called catalytic infrastructure is present in some parts of Australia. For
example, the Queensland Government has recently established a Priority Development Infrastructure
programme. This programme allows local governments, water distributor-retailers, developers or other state
agencies that deliver infrastructure to apply for co-investment funding from the state government. Coinvestment funding is available for roadworks, water supply, wastewater and stormwater infrastructure that
will enable significant development and economic growth for local communities. To be eligible for this
funding, local governments must have adopted a certain schedule of development contributions
(Queensland Government, 2015).
In England and Wales, one of 10 private (formerly state-owned) companies supply drainage and sewerage
services to a particular region, and supply water to most customers in their areas of operation. Another
dozen companies provide drinking water in particular localities. In Scotland and Northern Ireland,
government corporations manage water supply. Owners or occupiers of a property are entitled to request
that a water company provides a connection to a company water main for a domestic purpose; the water
company is entitled to recover the reasonable costs of making the connection. Disputes are resolved by a
government regulator. Where there is no water mains, the water company has a duty to respond to requests
for water mains for domestic supplies, and are entitled to charge for providing the main and any necessary
network reinforcement. The company must also allow for any future income that it will receive from the newly
connected property. There are also infrastructure charges to connect a new property.
In each case, a move towards efficient network pricing approaches based around the recovery of long-run
marginal costs has been an important feature of reform. This is an essential component of instituting water
infrastructure provision that can flexibly respond to growth:
In the case of water, it may appear that an increase in consumption will, in the short-run, only lead to an
increase in pumping and treatment costs, but little else of any significance. In the long-term, increasing
consumption requires the provision of new water resources, treatment capacity and the reinforcement of
water mains it is easy to show that such low estimates of SMRC [short-run marginal costs] do not
represent a desirable pricing regime if we want charges for water to be stable over time and to be
adequate to cover all present and future costs resulting from meeting increased demand. (London
Economics, 1997, p. 8)
The OECD (2009) has noted that decentralised approaches to water management can delay the tariff reform
necessary to move services towards cost-recovery models. It argues:
The actual level of predictability of tariff levels, however, depends on the governance structure of
service provision in a country, and especially on the independence from arbitrary political interference of
the entities in charge of regulating tariffs and on their capacity to understand the values and costs that
lie behind a tariff. Only such understanding will enable a tariff regulator to strike the right balance
between protecting final users against excessive requests on the part of services providers and ensuring
the financial viability of services. (p. 79)
Water management in New Zealand does not appear to have the institutional arrangements to make the
changes necessary to ensure that infrastructure rollout can adequately respond to new demand. The
Commission considers that alternative funding arrangements should only be examined within the context of
greater use of network pricing for water supply and an improved governance and regulatory framework for
the whole water sector.
Q8.5
How could the governance and funding arrangements for water infrastructure be
improved to encourage providers to be more responsive to demands for new
connections to the water network?
F8.2
The three waters have been identified as a relatively poor performing infrastructure
class. In comparison with other jurisdictions, management of water assets in
New Zealand is very fragmented. Strengthening commercial disciplines would provide
greater imperative for weaknesses in the water sectors regulatory and institutional
framework to be addressed, and may entail economic regulation of water services.
Summing up
Reviews of water services in New Zealand suggest that significant opportunities exist to improve the water
sectors regulatory and governance framework. Capitalising on these opportunities could improve the
performance of the sector in general and in the way it contributes to the supply of land to accommodate
urban growth.
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The Commission has raised a number of questions in this section and is interested in further comment from
inquiry participants regarding how the governance framework and funding arrangements for water
infrastructure could be improved so as to lift the performance of urban water networks and to make urban
water providers more responsive to pressure for growth.
8.3
CCOs and the delivery of water and transport infrastructure
CCOs are allowed for under the Local Government Act 2002 (LGA), and can be registered as a company with
50% or greater council ownership, or as another legal entity where a council or councils control more than
50% of voting rights (Local Government Infrastructure Advisory Group, 2013). The infrastructure assets for
which a CCO is responsible can be formally owned by the CCO or leased from the council.
All of the high-growth councils that are the focus of this inquiry operate at least one CCO. CCOs are
commonly used to manage community infrastructure such as galleries or sports facilities, and regional
transport hubs. A stocktake of CCOs conducted in 2007 found a total of 257 CCOs across New Zealand
(MWH Consultants, 2009).
Three CCOs are involved in providing and managing water or transport infrastructure. The roles of each of
these CCOs are quite different (Box 8.4). These CCOs are of particular importance to this inquiry given the
significant role of water and transport infrastructure in the supply of land for housing.
Box 8.4
CCOs involved in water and transport infrastructure
Watercare
Watercare provides water and wastewater services to about 1.4 million people in the Auckland region
(stormwater services remain the responsibility of Auckland Council). The companys obligations to
deliver water and wastewater services for Auckland, are set out in Part 5 s 5(1) of the Local Government
(Auckland Council) Act 2009.
Watercare is wholly owned by Auckland Council, and the council appoints the companys board of
directors who in turn appoints the chief executive. Watercare must consult with Auckland Council on its
draft statement of intent (SOI) (which includes a set of objectives and performance measures) and
report quarterly to the Council on its operations. Through this process, the Council has the opportunity
to shape Watercares strategic direction and to monitor performance.
Watercare funds all its activities, receives no money from the council or from central government, and is
prohibited by statute from paying a dividend to the council. Watercare owns assets valued at about $8
billion. Investment in new infrastructure is funded by a combination of revenue from water and
wastewater charges, IGCs, and external borrowing. Operational costs are funded through water
metering.
Auckland Transport
Auckland Transport was established under the Local Government (Auckland Council) Act 2009 with the
purpose of contributing to an effective, efficient, and safe Auckland land transport system in the
public interest.
Its main tasks include:
designing, building and maintaining Aucklands roads, ferry wharves, cycleways and walkways;
coordinating road safety and community transport initiatives such as school travel; and
planning and funding bus, train and ferry services across Auckland.
Auckland Council is Auckland Transports sole shareholder. Auckland Council agrees an SOI with
Auckland Transport, which contains performance measures for transport. Council also sets the overall
strategic direction and develops a Long Term Plan, which sets out transport funding. Auckland
Transport will provide regular reports on its performance to Auckland Council.
All decisions relating to the operation of Auckland Transport are made by, or under the authority of, its
Board. Five of the Boards directors are appointed by central government, two are appointed by
Auckland Council, and a representative from NZTA serves as an advisor to the board. Unlike Watercare,
Auckland Transport is funded by NZTA and Auckland Council and does not administer any charges or
levies. It also differs from Watercare in that it does not own transport assets.
Wellington Water
Wellington Water was established in September 2014 to provide three waters services to the
Wellington Region. The CCO is jointly owned by five local authorities: Wellington City, Wellington
Region, Hutt City, Porirua City and Upper Hutt City. It employs about 180 staff and manages
expenditure of about $175 million to maintain and upgrade water assets worth $2.7 billion.
The Wellington Water Committee (comprised of one representative from each shareholder council)
sets expectations for Wellington Water that are reflected in Wellington Waters SOI. Wellington Water
is governed by a Board of independent directors who are appointed by the shareholder councils. The
chair of the Board reports quarterly to the Wellington Water Committee.
Wellington Water manages water infrastructure and delivery, but the assets and liabilities have been
retained with the five Councils. Investment and pricing decisions also remain under the direct control of
each Council (unlike Watercare in Auckland).
The two main benefits that are hoped to be achieved through the regional CCO approach are
economies of scale (critical mass in terms of expertise; scale in purchasing power; and joint tendering)
and the ability to take a regional approach to infrastructure management. This will enable effective
allocation of priorities, such as the prioritisation of cross-boundary projects that have a large benefit to
the region, but would not justify the attention of any single council.
Hamilton City Council, Waikato District Council and Waipa District Council are currently considering the
governance arrangements for three waters, and recently co-funded a report to assess whether water,
wastewater and urban stormwater could be more effectively managed and governed. The report
recommended that the three councils should transfer their water and wastewater assets into a jointly owned
not-for-profit CCO. It also recommended that the three councils should retain ownership of their urban
stormwater assets, but outsource management of those assets to the CCO on a cost recovery basis
(Cranleigh, Mott MacDonald & Martin Jenkins, 2015).
What are the advantages and disadvantages of the CCO approach?

Chapter 6 set out the critical role that infrastructure plays in the land supply process. It noted the challenge
that councils face to deliver shovel-ready land in a way that creates some competitive tension between
developers, while not over-capitalising in the construction of costly infrastructure or developing it before it is
needed.
While the CCO approach does not fundamentally change this dynamic, establishing a separate entity with a
single focus may help to drive a more efficient management and delivery of infrastructure assets. However,
clear evidence about the relative performance of CCOs in facilitating a responsive supply is lacking. In part,
this is due to the general paucity of data on infrastructure rollout. This report has already made
recommendations to encourage councils to transparently report changes in their stock of dwellings, and
information about the supply of infrastructure to support growth.
But even with better data, it is probably too soon to determine with any certainty whether the CCO model is
making a material difference to land supply for housing. Each of the three CCOs involved in the supply of
water and transport infrastructure have existed in their current form for less than five years. In the case of
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Aucklands CCOs they have inherited the legacy systems of the former territorial authorities in the Auckland
area, while Wellington Water has incrementally expanded and was only established in its current form as of
September 2014. Also the roles of each of the three CCOs are different, which makes drawing general
conclusions about them difficult.
While it is clear that establishing CCOs to deliver infrastructure services is not a silver bullet for issues
relating to land supply for housing, a well-designed and implemented CCO does have potential to improve
performance. A significant body of literature exists that examines the establishment of arms-length agencies
to carry out public tasks (eg, Pollitt & Talbot, 2004). This literature presents a range of advantages and
disadvantages commonly attributed to the approach (Table 8.3).
Table 8.3
Arms-length delivery: selected advantages and disadvantages

Advantages
Disadvantages
Specialisation taking the agency out of a general multipurpose organisation can enable it to focus on a specific
set of objectives, which can ultimately improve outcomes;
rather than having the multi-faceted and often competing
objectives facing councils.
Loss of coordination the establishment of arms-length

agencies can result in a loss of coordination and disjointed
decision making because of the different priorities of the
various agencies. This issue is particularly relevant given
the strong interconnections between different
infrastructure assets.
Independence distance from politics allows the

development of a culture focused on serving
citizens/members interests.
Lack of responsiveness to owner separate agencies

can be slower than a directly controlled business unit to
respond to issues raised by an owner.
Closer to the consumer specialisation makes it easier

for key stakeholders to identify, participate in, and be
consulted about, the work of the organisation.
Higher overhead costs The operation of separate

entities might result in higher overhead costs.
Greater transparency an arms-length agency can be

subject to a more contract-like regime, specifying
performance objectives and budgetary limits.
Lower community accountability the devolution of

services could be perceived as undemocratic on the
grounds that elected officials have less control of the staff
responsible for service delivery.
Skills specialisation might improve staff motivation, allow

for the introduction of a higher degree of commercial
know-how, and attract employees from more diverse
backgrounds.
Source:
Pollitt et al., 2001; Gill, 2002; Plimmer Consulting, 2012; Local Government Infrastructure Advisory Group, 2013; OAG, 2012b.
The success of any CCO will depend on the ability to harness the benefits of the approach, while putting
measures in place to mitigate or avoid the potential disadvantages.
Both models [CCOs and in-house provision] have advantages and disadvantages which councils would
need to examine in the light of the nature of the infrastructure, potential efficiencies, local preferences,
the capability and culture of the council (both elected members and senior management), and synergies
or otherwise with other strategic delivery of the council. Whatever the model, it is critical that there is a
high degree of transparency around the drivers of decisions and clear reporting mechanisms. (Local
Government Infrastructure Advisory Group, 2013, p. 135)
With regard to Auckland Transport and Watercare, inquiry participants suggested that more effort is needed
to avoid problems with coordination and that CCOs need to give greater priority to accommodating urban
population growth.
Scope for Aucklands CCOs to improve coordination and give greater priority
to growth
Several submissions raised concerns about different priorities emerging between Auckland Council and its
CCOs:
It is not clear that CCOs have the same priorities of achieving higher density development in Auckland.
This then leads to conflicts between their requirements and what the Council and industry are trying to
achieve. (Property Council New Zealand, sub. 33, annex 10, p. 1)
[T]here is a lack of alignment between the councils (planning) goals/plans and those of the related
council agencies (parks and reserves, Auckland Transport, urban design, Watercare). This results in
developers trying to mediate disputes over how the development should be designed between
different parts of council This makes for an inefficient process, adds to the development cost, and
impacts the use of land for housing. (New Zealand Housing Foundation, sub. 69, p. 9)
Tauranga City Council questioned whether the CCO model is conducive to a coordinated approach to
growth management:
While there might be some benefits of delivering water, wastewater and even transport infrastructure
through a CCO model or via private provision, TCC believes that the implications for how this may affect
the ability to deliver an integrated approach to growth management require consideration. For example
water and wastewater pipes are often laid in alongside new roads how would this remain integrated if
different organisations are managing different infrastructure networks? In addition how could a council
ensure that its land use plans are integrated with the plans of other organisations that were responsible
for the delivery of new infrastructure to service these land use plans? (sub. 47, p. 22)
Some inquiry participants suggested that Aucklands CCOs give insufficient priority to supporting growth:
Water Care and Auckland Transport are independent entities who see more houses as a problem
because it requires them to invest money they dont have! (Development Advisory Services, sub. 75,
p. 4)
[I]n Auckland developers experience problems getting Watercare and Auckland Transport to facilitate
development. They dont seem to have linked objectives with the Council to enable greater
development. (Property Council New Zealand, sub. 33, p. 17)
Instruments are available that Auckland Council could use to address coordination issues and to ensure that
CCOs prioritise facilitating growth. The SOI is the main accountability document between a CCO and its
parent council. Through the SOI a council can set performance objectives and monitor CCO performance.
The LGA 2002 (schedule 8 (1)) sets out the purpose of the SOI:
(a) state publicly the activities and intentions of a council-controlled organisation for the year and the
objectives to which those activities will contribute; and
(b) provide an opportunity for shareholders to influence the direction of the organisation; and
(c) provide a basis for the accountability of the directors to their shareholders for the performance of the
organisation.
Any decisions relating to the operation of a CCO must be made in accordance with its SOI. A CCOs SOI
covers a wide range of matters, including the CCO's objectives, the boards approach to governance,
accounting policies, and the performance targets and other measures by which the performance of the
group may be judged (LGA 2002, schedule 8 (9)). The SOI is prepared by the CCOs directors but must be
agreed with the council (McKinlay, 2010). For Aucklands CCOs, the CCO Strategy Review Subcommittee is
responsible for negotiating the contents of the SOI (Auckland Council, 2015c).
Auckland Transport and Watercares most recent SOIs both set out the respective roles of the two
organisations in achieving the strategic directions contained in the Auckland Plan (Box 8.5).
Box 8.5
Contribution to the Auckland Plan: Watercare and Auckland Transport
Watercares SOI refers to the role that the organisation will play in helping to achieve the 13 strategic
directions contained in the Auckland Plan:
The Auckland Plan sets out 13 strategic directions that will help Auckland achieve the Mayors
vision. Watercare contributes directly to several of these strategic directions. That is to:
Plan, deliver and maintain quality infrastructure to make Auckland liveable and resilient.
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218
Enable Mori aspirations through recognition of the Treaty of Waitangi and customary rights
Acknowledge that nature and its people are inseparable
Contribute to tackling climate change and increasing energy resilience. (Watercare, 2014b,
p. 5)
Auckland Transports SOI also sets out how the organisation intends to align with the strategic
direction in the Auckland Plan:
To align with to the strategic direction in the Auckland Plan and its new statutory purpose,
Auckland Transport has identified the following overarching outcome: Aucklands transport system
is effective, efficient, and safe. Contributing to that outcome are six impacts (intermediate
outcomes):
Better use of transport resources to maximize return on existing assets;
Increased customer satisfaction with transport infrastructure and services;
Aucklands transport network moves people and goods efficiently;
Increased access to a wider range of transport choices;
Improved safety of Aucklands transport system; and
Reduced adverse environmental effects from Aucklands transport system. (Auckland

Transport, 2014, p. 6)
Neither SOI includes specific reference to the role that CCOs might play in the 11th strategic direction in the
Auckland Plan: House all Aucklanders in secure, healthy homes they can afford (Auckland Council, 2012a).
Associated with this strategic direction is a target to increase the supply of new dwellings to at least 10 000
each year and a directive to encourage the construction of smaller and more affordable dwellings.
F8.3
The primary accountability documents for Watercare and Auckland Transport (the
Statement of Intent) do not give effect to the objectives in the Auckland Plan to increase
the citys supply of new dwellings.
Performance objectives for Auckland Transport and Watercare

The SOIs for Auckland Transport and Watercare both contain a set of performance indicators against which
the organisations report progress (Table 8.4).
Table 8.4
Statement of Intent performance measures: Auckland Transport and Watercare

Auckland Transport
Watercare
Better use of transport resources to maximise return on

existing assets
Safe and reliable water
Increased customer satisfaction with transport

infrastructure and services
Healthy waterways
Aucklands transport network moves people and goods

efficiently
Health, safety and wellbeing
Increased access to a wider range of transport choices
Customer satisfaction
Improved safety of Aucklands transport system
Sustainable environment
Reduced adverse environmental effects from Aucklands

transport system
Effective asset management

Sound financial management
Source:
Watercare, 2014b; Auckland Transport, 2014.
The SOIs for Auckland Transport and Watercare both contain brief references to supporting growth.
Auckland Transports SOI programme notes that Auckland Transport will progress transport investment
to support development in the Northern Strategic Growth Area and contribute to transport planning
in the greenfield areas of the Auckland Plan (Auckland Transport, 2014, pp. 67).
Watercares SOI notes that Watercare will give effect to the Auckland Plan and commits to working
closely with Auckland Council on provisions in the Unitary Plan that provide for the efficient operation of
Watercares network and new infrastructure to provide for growth and support intensification
(Watercare, 2014b, p. 11).
But given the important role of water and transport infrastructure for new dwellings, it is problematic that
supply of infrastructure to support growth is not reflected in either organisations performance measures.
As discussed in Chapter 4, high-growth councils should set targets for zoned and serviced land, and should
monitor dwelling completions and net changes in the dwelling stock, relative to expected and actual
population and household growth. Chapter 6 suggested that councils may need to work backwards through
the supply chain to identify measures that need to be taken, including the provision of infrastructure, to
ensure that there are no unnecessary impediments to a responsive supply of dwellings.
Auckland Council should work with Watercare and Auckland Transport to amend their SOIs and
performance indicators to address concerns about an insufficient focus on urban development. This should
include establishing outcome measures that align with the targets for new dwellings in the Auckland Plan,
and measures relating to the cost and timeliness of new connections to the network.
In the foreword to its SOI (referred to as a Statement of Imagination), Auckland Transport notes that it is
already in the process of clarifying its strategic objectives and developing appropriate associated
performance indicators:
This initial Statement of Imagination gives an indication of the form and substance of a definitive
Statement of Imagination. When Auckland Transport has completed its current strategic work, the
Statement of Imagination will be much more comprehensive, setting out very clearly the desired state
for transport in Auckland and the complementary Statement of Intent will articulate the actions (and
consequential key performance indicators) for the implementation of the Statement of Imagination.
(Auckland Transport, 2014, p. 2)
This process should be used to address concerns about the supply of transport infrastructure needed to
support growth.
Of course, any amendments to SOIs would need to be mindful of legal obligations, such as the requirement
under the Local Government (Auckland) Act 2009 (s 57) that a water organisation must
[m]anage its operations efficiently with a view to keeping the overall cost of water supply and
wastewater services (collectively) at the minimum levels consistent with the effective conduct of its
undertakings and the maintenance of the long-term integrity of its assets.
R8.1
Auckland Transport and Watercare should amend their SOIs so that they are aligned
with the Auckland Plan and its target for new dwellings. The SOIs should include
performance measures relating to the efficient rollout of new infrastructure to support an
increased supply of new dwellings.
Auckland Council is currently undertaking a review of their CCOs. As part of this review, the Council has
prepared two reports that identify what is working well and identify any opportunities for improvement. One
report is from the perspective of council; the other is from the perspective of CCOs. Both reports identified
that Auckland Council and its CCOs could work more effectively as a group.
From the CCO perspective, PricewaterhouseCoopers (PwC) identified three opportunities for Auckland
Council and CCOs to improve coordination:
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220
Establish a director pool across the seven CCOs, where board members can sit on more than one board
and/or rotate across boards. This may support better intra-group communication and more effective
collaboration.
Encourage more frequent short-term secondments between organisations, particularly in areas with
perceived or actual areas of operational overlap.
Share successful processes, policies or approaches from one CCO to the next or between CCOs and
Auckland Council. (PwC, 2014a)
Auckland Council also identified scope to improve coordination. They canvassed a number of options to
improve integration, including using cross-agency groups, integrating corporate policies and processes, and
strengthening a culture of collaboration across the Auckland Council group (Auckland Council, 2014b).
The SOI process provides Auckland Council with the opportunity to set performance indicators to address
concerns about inadequate coordination between CCOs or insufficient alignment with Auckland Councils
objectives. This would strengthen the incentives on these organisations to find ways (such as memoranda of
understanding, setting up a development facilitator, or tighter coordination processes) to improve the
coordination between them and facilitate urban development. When Auckland Council has concluded their
review of CCOs, they should incorporate measures to improve integration and coordination between CCOs
and Auckland Council in SOI performance measures.
R8.2
8.4
Auckland Transport and Watercare should include performance measures in their SOIs
that encourage greater coordination between CCOs and with Auckland Council,
building on Auckland Councils current review of CCOs.
Infrastructure growth charges
Watercare receives no funding from Auckland Council. It raises most of its revenue through volumetric water
charges (water metering). Watercare also imposes an Infrastructure Growth Charge (IGC). This is a fee
applied to all new developments connecting to Watercares network and to existing non-domestic
customers that increase demand for water and wastewater.
The rationale for the IGC is that necessary upgrades are paid for by people who increase demand on the
system, rather than placing the burden of costs on existing customers. The IGC is stated to be a recovery of
capital investment costs only. Operating costs associated with new infrastructure are funded from water and
wastewater consumption charges (Watercare, 2014a).
Watercare (2014a) notes that an IGC is a contractual agreement between Watercare and the person seeking
the connection. Because water connection costs are recovered through the IGC, Auckland Councils
development contributions policy does not include any charges for water or wastewater infrastructure
(Auckland Council, 2014a).
How is the IGC calculated?

The current IGC is $12 075 excluding GST (the charge was $9 775 before 1 July 2014). The IGC is levied for
each new residential dwelling, including minor household units, extensions without internal access to the
main dwelling, and sleep outs with bathroom/toilet facilities (Watercare, 2014a). Hence the ICG is a flat
charge that does not vary depending on the location or nature of the dwelling. Only customers in rural areas
pay different amounts, and minor household dwellings that are smaller than 65m2 are charged at 2/3 of the
residential rate.
Watercares annual report (2014c) sets out the role of IGC and notes that it does not currently fully recover
the capital costs associated with growth:
Over the next 10 years, Watercare needs to invest $4 billion [real dollars, not including capitalised
interest] in infrastructure. To fund that investment in a way that is fair for all, we employ a combination of
service charges, growth charges and borrowing that balances the financial contribution made by present
and future generations and ensures the costs of growth and development are accurately aligned. From
1 July 2014, our infrastructure growth charges will rise as a result of increasing growth. These charges
only partially recover the capital costs associated with growth, from those who increase demand on the
system. (p. 8)
A report prepared for Watercare by PwC (2014b) reviewed Watercares revised IGCs. It explained that where
a service benefits a particular person or group, or where a particular person or group has caused the cost to
be incurred, Watercares revenue and financing policy states that that person or group should pay for the
cost of the service. Consistent with that approach, Watercares revised IGC policy seeks to recover the costs
of new infrastructure which caters for growth from the growth community. PwC generally supported the
approach, although they noted that Watercare should recover all costs (they currently under-recover) and
that a more targeted approach would be preferable if complexity and administrative costs could be kept
low.
Criticism of the IGC

The IGC has attracted criticism from the development community. This is most commonly in response to the
size and recent increases in the charge; the fact that the charge does not reflect actual costs; and the fact
that the charge is not subject to sufficient scrutiny (Box 8.6).
Box 8.6
Criticism of Watercares Infrastructure Growth Charge
Property Council New Zealand (2014) noted that the 2014 increase in the IGC was worrying as it is
likely to directly impact on the cost of a new house by increasing development costs. Grimes and
Mitchell (2015) also report concerns from developers about recent escalation in the charge:
The overall sentiment from developers is that Watercare contributions have been consistently
escalating and are now $12 500 [actually $12 075] a connection. Developers consider that they are
paying for a lack of past investment. (p. 33)
Some commentators have also criticised the IGC on the grounds that it is a flat charge that does not
reflect actual costs:
A single infill property would likely incur the same development contribution costs as a multi-unit
complex of 100 units (where the bulk infrastructure costs were smaller on a per-unit basis).
Watercare would typically charge the same $12,000 water connection fee for each of the units in
the 100-unit complex as they would for a stand-alone house. (Registered Master Builders &
Construction Strategy Group, 2015, p. 57)
The cost of connecting water to a new home has recently been increased to $12,000 by Auckland's
Watercare. This cost does not appear to be related to the actual cost of connecting water to a new
dwelling. (New Zealand Property Investors Federation, sub. 62, p. 4)
Property Council New Zealands submission also raises concerns about the cost of the IGC and
suggests that the charge should be subject to the same processes as development contributions:
Council Controlled Authorities, who charge infrastructure growth charges (e.g. Auckland Councils
Watercare Services Limited), should have these charges subjected to the same rules, notification
and appeal rights as development contributions. Otherwise there is little scrutiny over the level of
these charges and whether they are appropriate. (sub. 33, p. 18)
Should the IGC more closely reflect costs?

As discussed in Chapter 6, infrastructure costs can vary significantly depending on the dwelling location and
type. Reflecting these differences, many councils have set development contributions policies that reflect the
variations in the cost of delivering infrastructure in different locations. For example, charges levied under
Christchurch City Councils (CCC, 2015b) draft development contributions policy vary depending on the
catchment area where a development occurs. Some policies also vary the development contributions
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depending on the type of dwelling for example Tauranga City Councils policy has a special rate for infill
housing (Tauranga City Council, 2014d).
Before Auckland Council was formed in 2010, Watercare provided bulk water services to the various city and
district councils in the Auckland region. The individual councils each recovered water infrastructure costs
through their development contributions. In the case of Manukau City Council and Auckland City Council,
CCOs (Manukau Water and Metrowater) both levied a form of growth charge for drinking water and
wastewater (PwC, 2014b). Following the amalgamation, Watercare assumed responsibility for water and
wastewater operations for the former councils in the Auckland region. As a result, Watercare inherited a
diverse range of charging arrangements. Watercares revenue and financing policy guidelines notes that
charges should have regard to the costs of carrying them out, and how effective they will be in achieving
their objectives. This suggests that the adoption of a flat charge was adopted primarily because it is
relatively straightforward to calculate and is less costly to administer.
While a desire to keep administrative costs as low as possible is a worthy goal, it has been widely accepted
for some time that differentiated charges are superior to average-cost approaches from an infrastructure and
land-use efficiency perspective (Tomalty & Skaburskis, 1997). In addition, this approach appears to be
broadly accepted where water infrastructure is funded through development contributions. As discussed in
the previous chapter, a new set of principles have recently been introduced that provide direction to
councils about what they can use development contributions for and how to apply them. These principles
discourage councils from applying uniform charges across an entire district. Such an approach would fail to
recognise localised circumstances or characteristics that may materially increase or reduce the cost of
infrastructure requirements.
Three advantages in applying different charges in catchment areas are noted below.
A flat charge may distort the true cost of decisions to develop in certain locations.
A differentiated charge would allow Watercare to demonstrate what growth charges are being used for
and why. Tomalty and Skaburskis (1997, p. 1997) note that the greater planning detail and the fact that
funds raised in one area cannot be spent in another, make the area-specific approach more transparent
and provide greater accountability in terms of the spending of development charge revenues.
To the extent that certain types of development result in lower infrastructure costs than others, a flat
charge will result in a cross-subsidy between different types of dwelling. This might result in a situation in
which smaller and more affordable dwellings are cross-subsidising larger standalone dwellings. Crosssubsidy is unlikely to be occurring currently because Watercare does not yet recover the full cost of
infrastructure through their growth charges (they are gradually transitioning to a full cost-recovery model)
however some dwellings will receive a greater discount than others.
R8.3
Watercare should change their approach to calculating infrastructure growth charges to

better reflect the underlying economic costs of supply in different locations and for
different types of dwelling.
Should IGCs be subject to greater scrutiny?

As discussed above, several inquiry participants voiced concerns about the lack of oversight that applies to
IGCs. These concerns stem from the fact that no regulatory checks or controls are specifically targeted
toward Watercares IGCs. But some general regulatory checks do apply to Watercare that are relevant to
when and how IGCs are charged. These checks are set out in the following section.
Regulatory checks and controls on Watercare

Watercare is subject to various regulatory checks and controls sourced in different pieces of legislation: the
Local Government (Auckland Council) Act 2009, the LGA 1974, and the LGA 2002. Some of the controls are
specific to Watercare and some are of general application to CCOs.
Governance principles
Watercares obligations are set out in section 57 of the Local Government (Auckland Council) Act 2009. It
provides, among other things, that an Auckland water organisation
must manage its operations efficiently with a view to keeping the overall costs of water supply and
wastewater services to its customers (collectively) at the minimum levels consistent with the
effective conduct of its undertakings and the maintenance of the long-term integrity of its assets;
must not pay any dividend or distribute any surplus in any way, directly or indirectly, to any owner
or shareholder.
These governance principles provide that Watercare must operate as a minimum-price provider of water and
wastewater services, consistent with effective supply. The prohibition on paying a dividend reflects the
expectation that efficiency surpluses be applied to reducing customer prices. All revenue is invested either in
infrastructure and equipment or in operating costs. Watercares Statement of Intent states that Watercare
annually reviews any surplus funds from water and wastewater services and considers if it is commercially
prudent to return surpluses to customers (Watercare, 2014b).
Review by the Auditor-General
Section 104 of the Local Government (Auckland Council) Act 2009 provides that the Auditor-General must,
from time to time, review the service performance of the Council and each of its council-controlled
organisations. Under this provision, Watercare was reviewed by the OAG in 2014. The review was largely
positive, but found that Watercare could improve some aspects of its performance in particular, by
providing its customers with better information about how it operates and what customers can expect
(OAG, 2014b, p. 5). However, the OAG review focused on Watercares performance with respect to its
existing customers, and did not consider new connections or use of the IGC. When the OAG next reviews
Watercare, the review would benefit from having a broader scope that included issues relating to
Watercares performance with respect to future customers.
Performance monitoring by local authority
Section 65 of the LGA 2002 requires a local authority that is a shareholder in a CCO to regularly monitor the
performance of that organisation to evaluate its achievement of the local authoritys objectives for the
organisation; desired results, as set out in the CCOs SOI; and the overall aims and outcomes of the local
authority. Auckland Council has established an Accountability and Performance Committee that is
responsible for monitoring the performance of CCOs.
Reporting requirements
CCOs must produce a SOI that complies with the requirements set out in Schedule 8 of the LGA 2002 (see
s 64 of the LGA 2002). CCOs must also provide half-yearly and yearly reports on its operations (ss 66 and 67).
The annual report must include an auditors report on the CCOs financial statements and a judgement of
the CCOs performance in relation to its objectives (s 69).
Legislative or other guiding principles and rules
No legislative or other guiding principles or rules are specifically targeted at IGCs. But the guiding principles
and rules that Watercare is generally subject to are relevant. In making decisions about and imposing IGCs,
Watercare must give effect to the principles set out in section 57 of the Local Government (Auckland
Council) Act 2009. Of particular relevance is the principle that the Auckland water organisation must manage
its operations efficiently, with a view to keeping the overall costs of water supply and wastewater services to
its customers (collectively) at the minimum levels consistent with the effective conduct of its undertakings
and the maintenance of the long-term integrity of its assets. Watercare must give effect to this obligation
when it makes decisions, such as calculating the costing of IGCs, justifying IGCs, and deciding how IGC
proceeds are spent.
Judicial review
Options to contest an IGC are limited: it appears the only options are judicial review or complaint through
Watercares standard complaints procedure. The Commission is not aware of any cases where Watercare has
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been subject to a judicial review challenge, but it appears that the option is available. In practice however,
for most developers the cost associated with a High Court application is likely to preclude the option.
A gap in the regulatory framework?

The checks and controls that relate to Watercares IGC appear relatively light-handed, particularly when
compared with the detailed prescriptive requirements imposed on local authorities development
contributions and regulatory controls on capital contributions in other sectors (such as electricity). Essentially,
charges for water and wastewater infrastructure development in Auckland are carved out from Auckland
Councils development contributions policy and fall instead under Watercares IGC scheme. However, the
IGCs are not subject to the same checks and controls as are development contributions, and no statutory or
other checks and controls are targeted specifically at IGCs. As noted above, no formal objection or appeal
mechanism against the imposition or costing of an IGC exists, other than seeking judicial review or making a
complaint through Watercares standard complaints procedure.
In addition, Watercare is not required to publish information explaining how and why it makes the decisions
it does about IGCs. This is different from the legislative rules concerning development contributions, which
require local authorities to make a development contributions policy that explains and justifies the way they
calculate development contributions and identifies the assets for which development contributions will be
used.
The Royal Commission on Auckland Governance considered how water wastewater services would be best
dealt with under an amalgamated council. The Royal Commission made several recommendations regarding
the regulatory oversight of Watercare (Box 8.7).
Box 8.7
The Royal Commission on Auckland Governances views on regulation
The Royal Commission recognised that Watercare would have increased monopoly power under the
new recommended structure and that having no appropriate checks and balances could lead to,
among other things, unjustifiably high prices to the consumer. The Royal Commission found that
some form of regulation was necessary. It recommended what it called a relatively light-handed
regulatory approach initially, to be reviewed within five years of establishment, and the potential for
stronger regulation if required over time. The Royal Commission said that more heavy-handed
regulatory regimes (such as those used in the United Kingdom) are costly, and may be of questionable
value in the absence of a privatised industry (as in the United Kingdom) or any real concern about the
way an industry is operating.
Prior to the merger, Watercare was subject to certain public good governance principles. The LGA
1974 stated that the Watercare was to operate as a minimum price operator whose retained surpluses
and returns on assets are minimal. The Royal Commission recommended that the new Watercare
continue to be subject to these public good governance principles.
The Royal Commission also recommended that an Auckland Services Performance Auditor be
appointed. The Auditor would have oversight of all Auckland Council activities, including Aucklands
water services industry. It recommended that the Auditor would undertake, in relation to Watercare,
efficiency and effectiveness reviews every three years. These reviews would incorporate international
comparative industry benchmarking and an evaluation of service levels, efficiency, affordability of water,
and demand management performance.
Source:
Royal Commission on Auckland Governance, 2009.
The Commission considers that it is unusual that the checks and balances that apply to development
contributions can effectively be by-passed if responsibility for certain infrastructure services is delegated to a
CCO. The Commission is interested in further information about whether the existing, more general, checks
and balances that apply to Watercare are sufficient.
Q8.6
Do the existing checks and balances that apply to Watercare provide sufficient oversight
of Watercares infrastructure growth charges? If not, what alternative measures would be
most appropriate?
CCOs and development agreements

Chapter 6 described the 2014 amendments to the LGA 2002 that clarified the legality of councils entering
into development agreements, where a developer provides infrastructure as an alternative to paying all or
part of a development contribution. The changes also introduced a requirement for councils to consider any
request to enter a development agreement and to respond in writing with a decision regarding the request,
and the reasons for the decision.
As with provisions that introduced greater scrutiny of development contributions, the amendments to the
LGA 2002 that require councils to consider development agreements make no reference to infrastructure
provided by CCOs. This means that CCOs such as Watercare are not under the same obligation as are
councils to consider development agreements. The Commission is not aware of any reasons why the
arguments for imposing this obligation on councils should not also apply to council-owned CCOs.
Statements from one of the developers interviewed by Grimes and Mitchell (2015) suggest that this is
problematic and that developers may be able to provide infrastructure solutions at a lower cost:
Watercare behaves in a monopolistic way charging what they like. Its not value for money and we could
provide onsite solutions cheaper than their costs particularly with the level of over specification they
require on their systems. (p. 59)
8.5
R8.4
The requirement to consider development agreements that applies to councils should

also apply to CCOs.
Q8.7
Are there other regulatory requirements that apply to councils that should be extended
to include CCOs?
Conclusion
Supply of transport and water infrastructure are critical components in an effective supply of land for
housing. The governance arrangements for these assets are quite different for transport infrastructure,
central government plays a central role both in a planning and funding capacity, whereas the arrangements
for water infrastructure are much more devolved.
The main concern relating to governance of transport infrastructure stems from the incentives facing NZTA
and local councils. NZTA responds to the objectives set for them by central government. Because these
objectives do not include specific reference to land supply for housing, tensions can emerge between NZTA
and council priorities. Directing NZTA to focus on how transport infrastructure can support the growth of
cities is one option available that would help high-growth areas increase the supply of land for housing.
Water infrastructure in New Zealand, as in many other countries, is provided by local public monopolies. As
such, they are subject to a number of issues and incentives that can hinder their ability to respond to
demands for water services to support urban growth. Reform of water services in other countries has centred
on exploiting economies of scale and introducing commercial disciplines. This is often done in combination
with reform of regulatory and institutional frameworks to balance a commercial focus with public and
environmental objectives, and can include regulation over access and the price of services.
Substantial weaknesses have been identified in the water sectors regulatory and institutional framework.
Addressing these weaknesses would improve the performance of the sector in general, and in a way that
could contribute to urban growth through improving the way water infrastructure is delivered. The
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Commission is interested in further feedback from inquiry participants for reform of the regulatory framework
for water to support urban growth. The Commission is also seeking feedback about opportunities to take
advantage of scale economies in the delivery of water services.
CCOs are responsible for water and transport infrastructure in Auckland, and to manage water infrastructure
in parts of the greater Wellington area. The accountability arrangements for Aucklands CCOs are not
currently aligned with Auckland Councils objectives to increase the citys supply of dwellings. This should be
addressed by adding performance measures to CCO SOIs relating to the efficient rollout of new
infrastructure to support an increased supply of new dwellings.
Chapter 9 | Shaping local behaviour
Shaping local behaviour
Key points
Existing homeowners benefit from local regulations that restrict the supply of new dwellings.
Homeowners also have a disproportionate influence on local political processes, including local
body elections and consultation processes. Many of the undesirable council practices outlined in
this report are readily explained as councils being responsive to those who participate in local
democratic processes.
Consultation processes that seek to understand the wider communitys perspective on land use
regulation can help overcome these drawbacks. Some councils in New Zealand and overseas are
exhibiting good practice in promoting more sophisticated conversations about their cities futures
and about accommodating growth.
Compared to other countries, planning matters in New Zealand show relatively little central
government involvement, including a lack of national guidance. The divergence between local and
national interests in the growth of New Zealand cities may justify greater central government
involvement. For example, Ministerial powers might expand to direct changes to local plans where
evidence shows that the plans provide insufficient development capacity to meet population
growth.
Some land banking occurs in New Zealand cities. But land banking is only possible because local
regulations and investment decisions restrict the supply of land for housing. Land banking is a
symptom, rather than a primary cause, of land supply shortages.
Council rates are a type of tax, and can influence a landowners decisions about how they use their
land. A capital value rating system taxes the improvements on land; so, at the margin, owners are
discouraged from developing land or intensifying development on it. By contrast, a land value
rating system encourages land to flow to its highest value use.
A trend in recent decades is for city councils to abandon land value rating in favour of capital value
rating. The arguments that support this shift in policy are not strong.
Local government rates allocate a fixed revenue burden among ratepayers. Although growth
provides councils with the opportunity to increase their expenditure by expanding the rating base,
the direct incentives from the rating system on councils to accommodate growth are weak.
The UK central government provides councils with a bonus for the construction of new dwellings.
Little evidence exists that this is effective in encouraging councils to be more accommodating of
growth.
Core Crown land is exempt from general rates. There appears to be no principled reason for this.
Rating Crown land would provide agencies with the same incentives as private owners have to use
land or release it to those who will develop it.
9.1
Introduction
In a 2008 review of how housing markets and the economy interact, Muellbauer and Murphy concluded:
Increases in the average real price of housing change the distribution of welfare towards the old, who
tend to be owners, and away from the young, who tend not to be owners and may not even be old
enough to vote. The effects on the intergenerational distribution of welfare are similar to those of higher
government budget deficits. (p. 27)
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228
But they noted the distributional effect of the intergenerational transfers is not the same in the case of
housing:
An important difference, however, is that while deficits may be used to fund public goods, such as
health and education, the redistribution from an increase in average house prices is towards the haves
from the have-nots. Because access to a clean environment and publicly funded goods, such as
transport and education, is reflected in land or house prices inequality of income and wealth is often
transmitted into differential access to such goods. Thus, higher average house prices tend to amplify
market inequality and social exclusion. (p. 27)
Muellbauer and Murphy considered that these policies are explained by the underlying political processes:
The lack of voting power of the young and the disproportionate influence of wealth, via the media and
the funding of political parties, tends to make governments complicit in policies resulting in higher
house prices. This includes planning or zoning policies favouring incumbents, as well as tax policies.
(p. 27)
This chapter reviews some of these influences as they apply at the local level. It will consider some of the
forces that influence the attitudes and actions of landowners, homeowners and councils towards the supply
of new housing and land for housing. It also considers options to align their incentives to encourage the
release and development of land for housing.
9.2
The political economy of local planning
Key decisions about land use regulation and investment in growth-enabling infrastructure are taken by
popularly elected local politicians or officials operating within a framework set by those politicians. Those
politicians face pressure to act in ways that are not always supportive of residential development or growth.
Participation in local body elections

Turnout in recent local body elections has been trending down and has not exceeded 50% since 2007; in
2013 the turnout for city council elections fell to 39% (Figure 9.1).
Figure 9.1
Turnout in local elections
60%
50%
40%
30%
20%
10%
0%
Regional
Councils
District
Councils
District Mayors City Councils

2004
Source:
2007
2010
City Mayors
Community
Boards
2013
DIA, 2013d.
Among the 10 territorial authorities that are the focus of this inquiry, voting rates have been static or
declining over time (Table 9.1).
Table 9.1
Voting rates among the 10 territorial authorities that are the focus of this inquiry
Council
2004
2007
2010
2013
n/a
n/a
51%
36%
39%
42%
52%
43%
45%
35%
38%
38%
55%
48%
51%
46%
37%
44%
44%
43%
46%
44%
44%
38%
42%
35%
34%
31%
Waimakariri District Council
39%
45%
42%
35%
Wellington City Council
42%
40%
40%
42%
52%
52%
49%
48%
Auckland Council
Source:
DIA, 2013d.
Homeowners are thought more likely to be voters (Koff & Sen, 2005). This may be supported by voter
registration data, where older people are more likely to be enrolled than younger people (Figure 9.2) and
more likely to vote in local elections (Figure 9.3).
Figure 9.2
Voter enrolment rates by age

70+
65 - 69
60 - 64
55 - 59
50 - 54
45 - 49
40 - 44
35 - 39
30 - 34
25 - 29
18 - 24
0%
Source:
Electoral Commission, 2014.
Note:
1. As at 20 September 2014.
20%
40%
60%
80%
100%
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230
Figure 9.3
Voting rates in local elections by age
70+
60 69
50 59
40 49
30 - 39
18 - 29
0%
Source:
20%
40%
60%
80%
100%
80%
100%
LGNZ, 2013b.
A strong correlation exists between age and home ownership (Figure 9.4).
Figure 9.4
Proportion of people who own a home by age

75+
70 - 74
65 - 69
60 - 65
55 - 59
50 - 54
45 - 49
40 - 44
35 - 39
30 - 34
25 - 29
20 - 24
15 - 19
0%
Source:
20%
40%
60%
Statistics New Zealand 2013 census data.
The significantly higher voter participation of older groups in local government elections, and the markedly
higher homeownership rates among older New Zealanders, means that homeowners are likely to be the
dominant voters in local government elections.
F9.1
Groups that have high home ownership rates have higher rates of participation in local
government elections.
Existing homeowners benefit from more restrictive land supply

For most New Zealanders, home ownership entails a significant accumulation of equity into one asset (the
house) and is a commitment to living in a given community for a reasonable period of time (compared to
renters). Policies that restrict the supply of effective land for housing are beneficial for homeowners because
they increase the value of that asset. Policies that have the effect of preventing intensification are seen to be
beneficial to homeowners because they preserve the character and amenity of the community the
homeowner has chosen to live in many homeowners value peace, quiet, privacy and light.
NIMBYs (not in my backyard) are often described as merely opposing change. All change involves some
loss, including disruption to the status quo, and uncertainty. But change can also bring benefits. Fischel
(2001) argues that NIMBYism is a rational strategy for homeowners, even where proposed developments are
likely to be beneficial to the homeowner, because of that uncertainty. Unable to insure against decreases in
property prices and with their savings concentrated in one major asset, homeowners will be risk-averse in
opposing development projects even if the expected impacts are benign or positive. Homeowners,
particularly those who are highly leveraged, will be conservative in managing risks to their investment.
Peoples opposition to development, even where a rational calculation of the costs and benefits would
suggest that citizens should welcome development, or be more neutral in their reaction, could be the result
of the endowment effect (Thaler, 1980). The endowment effect has been observed in a wide range of
different populations using different goods (Hoffman & Spitzer, 1993). People appear to value what they
already have simply because they already have it, even favouring what they have over what they might gain,
despite the gains being demonstrably higher. One explanation for the endowment effect is that people are
simply loss-averse. People tend to prefer avoiding losses to acquiring gains. It could also be that people
have a status quo bias. People tend to have a preference for the current state of affairs and perceive any
change from the status quo negatively rather than positively.
Together, these characteristics mean that the potential negative consequences of development loom much
larger in the minds of homeowners than the potential positive consequences, and contribute towards
existing homeowners opposing change. Tauranga City Council submitted that
[m]uch of the NIMBY attitude seems to stem from a fear of change and often a perception that
development may adversely affect property values. Given that the family home is generally a
households most significant and often only asset of any note these attitudes are understandable and
rational on an individual basis, but probably are not in the national interest. (sub. 47, p. 12)
In addition, regulatory and funding policies, that make housing more scarce overall, increase the value of
homes to the direct benefit of homeowners.
A 2014 study comparing UK local authorities found that areas with higher rates of home ownership had
smaller increases in the number of new houses between 2001 and 2011. On average the number of houses in
a local authority area grew by 8.75% over this period. But a 10 percentage point increase in home ownership
was associated with 1.2 percentage point lower growth in the number of houses. This shows a statistically
significant negative relationship between rates of home ownership and new housing supply in the UK
(Coelho, Ratnoo & Dellepiane, 2014).
F9.2
Restricted housing supply will tend to inflate the value of existing homes.
F9.3
Existing homeowners have an incentive to be risk-averse in opposing developments

that could affect the amenity and value of their home.
Inquiry participants told the Commission many times in engagement meetings that some councils consider
growth and development to be an expensive inconvenience. One submitter argued that rates control is the
dominant concern of local government:
Elected members and therefore staff are strongly incentivised to ensure that uncertainty about future
council plans is eliminated and that rates only rise within a narrow pre-determined range.
following these incentives may mean a council looking after its own interests at the expense of the
communitys councils have a very narrow view of the world and are not responsible for the overall
well-being of their communities. In fact they act very logically within the system in which they operate.
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232
The general political incentives that apply in local government would suggest that spatial design
considerations follow the need to minimise any rates impact from infrastructure development in support
of population growth. So it would be just as valid to think of the planning and development system as a
means of constraining infrastructure development for the political advantage of existing elected
members. (Donald Ellis, sub. 44, pp. 34, 6)
Where growth is a burden on local government, rather than a boon, existing homeowners will have
incentives to oppose development to control rates. In reviewing 11 land supply and planning systems, Monk
et al. concluded that
[a] lack of infrastructure and indeed services more broadly can not only stall development, but acts as
a disincentive to existing residents to support new housing. (2013, p. 37)
These sentiments have been expressed by the Mayor of Queenstown Lakes:

''The reality is that, while we welcome development and the growth that it generates, existing
ratepayers should not have to foot the bill for new costs created by developers,''
''Our message is simple - if you don't want to pay more as a ratepayer for existing or future community
infrastructure, then you need to make your views known.'' (Government change, 2014)
F9.4
Existing homeowners have an incentive to oppose development that involves council

expenditure on infrastructure that does not benefit them but will be recovered through
general rates.
Saiz (2010) shows that geography can also be

one of the most important determinants of housing supply inelasticity: directly, via reductions in the
amount of land availability, and indirectly, via increased land values and higher incentives for anti-growth
regulation. (p. 1286)
Saiz calculates the amount of developable land in US cities that is lost to geography (including large bodies
of water within a 50 km radius of each city) and compares it to the Wharton Residential Land Use Regulatory
Index (see Chapter 2), housing prices and demographic growth. Physical land scarcity, such as in cities
situated on harbours, is associated with stricter regulatory constraints to development:
Empirically, I find that antigrowth local land policies are more likely to arise in growing, land-constrained
metropolitan areas and in cities where pre-existing land values were high and worth protecting. (p. 1255)
In sum, the regulation equations demonstrate that higher housing prices, demographic growth, and
natural constraints beget more restrictive land-use regulations. The impact of constrained geography
is larger, especially in larger cities. For example, in a metro area with average regulations and a
population of one million, the interquartile change in the share of unavailable land (from 0.09 to 0.38)
[due to geographic constraints] implies a 50% reduction in supply elasticity. (pp. 1279-80)
Geographic constraints to development lead to higher property prices earlier in a citys development
because of the physical scarcity of land. These higher property values in turn encourage owners to support
stricter regulatory constraints on development at an earlier point in time.
F9.5
Cities that are subject to geographic constraints to development (eg, near to a large
body of water) show less supply responsiveness to housing demand, both because of
the geographic constraints and because these constraints encourage higher land prices,
strengthening the incentive for existing owners to support anti-development
regulations. This is particularly true in larger and faster-growing cities.
The outcome of political processes will reflect the interests of those who
participate
The dominance of homeowners in local government political processes could help to explain a number of
the problems identified in this report:
the existence of urban containment policies and density controls (Chapter 2), minimum parking
requirements, minimum apartments sizes, balcony requirements, and lower-than-optimal height
restrictions (Chapter 3);
the proliferation of lifestyle blocks through zoning policies (Chapter 3);
controls on the internal design and construction of buildings that exceed standards set under the
Building Act (Chapter 5);
land use regulations that make many residential land uses discretionary in District Plans, rather than
restricted discretionary or permitted (Chapter 5);
a reluctance to use available funding sources resulting in the rationing of growth-enabling infrastructure
(Chapters 6 and 7); and
the absence of facilitating dwelling growth as an objective of council controlled organisations (CCOs)
(Chapter 8).
Public choice theory suggests that political processes will serve the interests of a theoretical voter at the
midpoint of a political spectrum (median voter theory eg, Bergstrom & Goodman, 1973) or large groups
with a homogenous set of interests (interest group/probabilistic voting theory eg, Austen-Smith, 1987). The
interest of homeowners in restricting the supply of new housing is readily explained by these models:
While welfare economics assumes that government decisions are disinterested and wholly intended to
maximise net social benefits, public choice theory presumes that the decisions of politicians will be
primarily determined by their wish to be re-elected. In practice this means that they will give greater
weight to the benefits and costs affecting their most vocal constituents, and very little weight to those
benefits and costs affecting the less vocal, or those who are not their constituents. (Evans, 2004, p. 199)
Modelling by Ortalo-Magn and Prat (2014) supports these theories, showing that cities will be smaller
(approve less housing) than ideal, because in equilibrium the capital losses on housing experienced by
existing residents more than outweigh the gains of lower future housing costs, even though all residents
would be better off if the city was as large as possible. In particular, they find older homeowners suffer more
of a loss from any drop in housing prices, and benefit less from any drop in future rents, because they will
consume housing over shorter periods in the future. Dubin, Kiewiet and Noussair (1992) show a strong
correlation between districts of San Diego with high homeownership rates, and districts that vote for growthcontrol measures:
The Urban Taskforce report (2009) said that one barrier to high-quality, larger-scale urban development was
that
delays in consenting come from NIMBY resistance [from] both people who live adjacent to
developments, residents objecting to later development stages, and a presumption within the
regulatory framework that people will be adversely affected by the development. (p. 17)
The removal of provisions that would have allowed higher-density development from the Proposed
Auckland Unitary Plan (PAUP) has been described as the result of lobbying by existing homeowners (Box 9.1)
Box 9.1
Homeowners and density controls in the Proposed Auckland Unitary Plan
The Proposed Auckland Unitary Plan (PAUP) released in September 2013 reduced the potential
capacity of most of the Auckland isthmus and North Shore to carry dwellings compared to earlier drafts
of the plan, through the creation of a Mixed Housing Suburban zone. Commentators uniformly
attributed the down-zoning to lobbying by existing homeowners:
Auckland developer Mark Todd has emailed councillors to say they have little understanding of
how to motivate the private sector to build smaller, more affordable housing in places people want
to live. His company, Ockham Investments, had been working on proposals for three large sites of
2, 3 and 9ha sites for up to 1000 high quality one, two and three-bedroom homes. What a waste
of time, because if the unlimited density is removed, they will be non-complying under the new
233
234
plan and hence not eligible to receive preferential consent processing. What is happening is a
real tragedy. Yet again, the older, wealthy, landed generation is behaving in a short-sighted, selfish
manner. This is a huge lost opportunity, Mr Todd said. (Orsman, 2013)
Auckland Community Housing Network chairman Peter Jeffries says Auckland councillors dealt "a
disastrous blow to young couples seeking their first house by caving in to an intense campaign by
existing homeowners against high-density housing in almost all suburban areas. (Collins, 2014)
The draft plan was designed to create greater housing choice. But this has been scaled back
significantly during public consultation. Residents want to preserve their lot, but it comes at a cost
to future Aucklanders. New height limits have been introduced in many suburbs, while existing
height limits have been tightened, as have density constraints which means it will be harder to gain
access to attractive suburbs. Present homeowners benefit by such policies, as restrictions create
scarcity and increase house prices. But for the expected one million new residents over the next 30
years or for the poor seeking access to the city centre, the news is bad. (Cooper, 2014)
The Property Council submitted that the planning system needed to

account for the needs of the region/districts future inhabitants and those who might not engage
in the planning process. The current system tends to favour existing home owners (NIMBYs) over
those looking to get on the housing ladder (young people and future residents) eg in Auckland
officials had to significantly down zone from their draft unitary plan due to pressure from existing
home owners. (sub. 33, p. 4)
Local politicians will find it particularly difficult to resist the preferences of existing homeowners where those
owners organise into residents associations, where ward voting makes councillors responsive to particular
communities, or where community/local boards are formally established to act as a voice for an area. Each of
these is commonplace in New Zealand cities, and present in Auckland.
F9.6
9.3
The influence of homeowners in local government elections and consultation processes

promotes local regulatory and investment decisions that have the effect of reducing
housing supply.
Implications for the inquiry
The evidence that councils incentives around land supply for housing are skewed by the domination of
homeowners in elections and consultation processes is concerning.
Were voter turnout in a national election to fall to 40%, it would likely be considered a democratic crisis, and
questions might be asked about the legitimacy of the result of those elections.
Addressing the democratic failure

One implication of these findings could be to put more effort into increasing public understanding about
local government and encouraging participation in local body elections. Low voter turnout in local body
elections is not exceptional compared to local body elections in other countries, and reasonable
competition exists among candidates for election (LGNZ, 2012). Local Government New Zealand (LGNZ,
2013b) has previously suggested that low voter turnout may be an indication of broad satisfaction with local
service delivery.
Yet a survey of New Zealanders perceptions of local government, undertaken for LGNZ (2015b), shows wide
public dissatisfaction with the performance and local leadership of councils. The survey showed low
awareness of the range of services and functions undertaken by local government, and only a minority of
respondents (43%) considered that local government is extremely important or very important to them
in their daily life. Notably, the figure was much higher for those aged 65+ (59%) and lower for those aged 18
29 (30%) and 3039 (38%).
So a better explanation for low voter participation is a general lack of understanding about the importance
of local government in influencing residents quality of life, including their access to housing. While both
homeowners and renters share the burden of paying rates, this fact is less clear to the second group
because the cost of rates is bundled into the rent price.
The report of the Justice and Electoral Committee (2014) on the 2013 local authority elections made a
number of recommendations to address this, including that Government should:
provide local authorities with good-practice guidance on making council information and decisions easily
accessible online in a plain English format;
commission research into the value of civics education, and review the available teaching material about
civics education;
provide local authorities with guidelines about promoting voting in local authority elections;
consider a national campaign to promote voting in local authority elections;
consider amending the Local Electoral Act 2001 to give the Electoral Commission a mandate to promote
participation in local authority elections (it already has such a mandate to promote participation in
national elections); and
promote alternative voting methods.
These options may be worthy of investigation. LGNZ and the Department of Internal Affairs should also
consider options to increase understanding of the functions that councils undertake, so as to promote
participation. However, New Zealands voting rates at the local government level are not unusual
internationally (LGNZ, 2012). This suggests that overcoming the problem of low voting is unlikely to be easy
or fast.
Better consultation
In its 2013 report Towards better local regulation, the Commission found that increasing diversity and
greater community expectations present difficulties for local authorities in reconciling different community
interests and making decisions. It noted that:
Diverse communities imply diverse needs. New Zealands communities have diverse cultures, age
profiles, interests and expectations of local government. This poses challenges for local authorities and
the way in which they engage and consult with people on the issues that affect them.
Changing age profiles drive changing expectations and ways of communicating. Older people are likely
to have different priorities from younger people and may have different expectations about the role of
local government. At the same time, the advent of the internet and social media mean that younger
people communicate in quite different ways (though many older people are also adept at these new
forms of communication). (NZPC, 2013, p. 52)
A need exists for councils to consider alternative consultation mechanisms that ascertain the views of a
broader cross-section of the community in developing plans in a way that seeks to extract the actual (often
diverse) views of underrepresented groups, rather than stereotyping them.
Engagement with the public is a key step in planning for the provision of more development capacity.
Increases in a citys population and housing supply affect existing residents and amenity, and need to be
clearly explained to, understood and accepted by the community. However, gaining wide and deep
involvement in city planning has proven a challenging goal for many cities in New Zealand and overseas.
How well do current processes engage the public?

A number of submitters argued that current planning processes are difficult for the public to access, with
complex planning documents identified as a major barrier to engagement. This creates community
resentment, opposition to planning proposals and planning outcomes that favour existing residents:
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236
The current consultation process around proposed plans is a joke. They are so complex it is beyond the
scope of the average ratepayer or even most professionals to make a compelling submission for
change. Most if not all submissions are traditionally ignored by the Planners. (Wilson Penman, sub. 1,
pp. 12)
The complexity and difficulties of navigating the Proposed Auckland Unitary Plan PAUP and the hearing
processes are such that people who are not expert in planning or law cannot properly understand what
is proposed and what rules apply to developments. This leads to the majority of Aucklanders being
effectively disenfranchised from the process. Auckland 2040 acts as the umbrella organisation for
approximately 100 community organisations across Auckland. This has been necessary as without our
professional input effective participation in the process would be very difficult. This lack of involvement
leads to resentment and this in turn leads to the creation of political opposition to provisions which
seem to the population to be intrinsically unfair. (Auckland 2040, sub. 28, p. 5)
In Auckland, clearly young people and new residents are affected by housing unaffordability. They did
not appear to formally engage in the process and therefore the PAUP was revised to benefit existing
residents over them (ie, large swathes of the residential zones have blanket heritage protections
covering them, and zones enabling higher density development have been decreased neither of which
are helpful to increase development / supply and address housing affordability concerns) (Property
Council New Zealand, sub. 33, p. 7)
Others noted that getting the public involved can be difficult for local authorities because of limited
community understanding or interest in planning processes:
RMA [Resource Management Act] related District Plan review of Plan Change consultation requirements
are extensive. The degree of participation by individual affected land owners is variable. They often have
conflicting agendas. Councils proactively engage to encourage orderly land development strategies but
this can be a very challenging process. (Ralph Broad, sub. 3, p. 2)
The issue is not generally in making information available and giving people the opportunity to
comment, but getting the public to take an active interest. The general public have little awareness of
the role of District plans and play little attention to them, until they either want to do an activity
requiring resource consent or a resource consent is lodged for neighbouring land. (Allison Tindale,
sub. 8, p. 10)
Underlying problems
Two reasons why public engagement has shown disappointing results in some New Zealand cities are
skewed participation in engagement, and insufficiently inclusive or innovative processes.
Skewed participation in engagement
As noted earlier in this chapter, participation in local body elections is skewed towards property owners.
Evidence suggests that similar dynamics occur in local authority planning engagement processes. An
Auckland Council report on feedback on the Draft Auckland Unitary Plan found that more of the
respondents (ie, those who provided comment either on paper or online) were Pkeh (Figure 9.5) and older
(Figure 9.6) than the general population of Auckland.
Figure 9.5
Feedback on Draft Auckland Unitary Plan by ethnicity
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Pakeha
Mori
Pacific Peoples
Draft Auckland Unitary Plan feedback (where ethnicity specified)
Figure 9.6
Asian
Middle Eastern, Latin

America, African
Auckland's population
Feedback on Draft Auckland Unitary Plan by age group
25%
20%
15%
10%
5%
0%
15-24
25-34
35-44
45-44
55-64
65-74
Draft Auckland Unitary Plan feedback (where age specified)
Auckland's population
Source:
75+
Auckland Council, 2013d.
Auckland Council also established an online Peoples Panel as part of its enhanced consultation around the
PAUP. The report summarising the panels views noted that
forum participant demographics were skewed towards older people (especially those aged 55-75 years)
and Europeans The forum attracted a relatively high proportion of participants from central and north
Auckland, and fewer from South Auckland, similar to other Peoples Panel surveys. (Parsons, 2012,
pp. 1213)
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238
Similar arguments have been made about the age and ethnicity of submitters on the Aucklands Long-Term
Plan (Nunns, 2015).
Insufficiently inclusive or innovative processes
Evidence provided to the inquiry indicated that many local authorities go to considerable lengths to garner
public interest and involvement in the development of city plans. Even so, there was a sense in this evidence
that some councils saw the focus of their engagement activities as encouraging people to participate in the
process steps laid down in the RMAs Schedule 1, rather than seeking a deeper understanding of the wider
communitys needs or involving them in making decisions about trade-offs within a plan. One council argued
that attempting to
accommodate views of those who do not participate in the process would create an outcome where
there is no incentive to participate at the beginning but rather confront at a later date. RMA preconsultation processes (clause 3, schedule 1) enable people to engage informally in the early stages of
plan development. The section 32 Evaluation Report requires a consideration of social, cultural,
economic and environmental effects. (Otago Regional Council, sub. 15, p. 6)
Where more intensive engagement processes were used for planning, they tended to use the less
prescriptive consultation mechanisms of the Local Government Act 2002 (LGA). This can be seen in the
processes that local authorities used to develop some of the spatial plans discussed in Chapter 3. Two
examples are noted below.
Auckland Council used a range of tools to consult over the Auckland Plan, including a youth campaign
that included 60 workshops/meetings and a hearings session devoted solely to youth issues; an online
Peoples Panel in which Auckland residents were invited to have their say on councils plans activities
and services by taking part in short surveys sent to them by email; forums and summits targeted at
particular ethnic communities; and 50 roadshows held across the region (Auckland Council, 2012c).
To develop the Whangarei Growth Strategy, the Whangarei District Council conducted research into the
regions expected population growth, demographic change and the implications for the environment,
economy, infrastructure demand and housing. It then consulted on three potential scenarios for
responding to the regions growth. The preferred scenario formed the basis of its final Growth Strategy.
Q9.1
Do the procedural requirements of the RMAs Schedule 1 discourage local authorities

from undertaking more inclusive or innovative public engagement on city planning
proposals?
Getting deeper and wider involvement

Drawing upon Grattan Institute research into city governance, Kelly and Donegan (2015) argue that effective
and sustainable urban decision making has two key characteristics:
First, decision-making must take the whole citys needs into account. This doesnt necessarily require
new organisations. Less formal mechanisms such as improved cooperation among governments,
businesses and civic institutions, and good relationships among the various players, including across
political divides are critically important in making this happen.
Second, if changes are to endure, residents need to have much more power to shape decisions that
affect them both at a citywide and at a local level. The community engagement that precedes
decisions affecting cities and the living in them needs to extend far deeper than the perfunctory
exercises that Australian governments usually conduct. (pp. 15354)
In its report on regulatory institutions and practices, the Commission also highlighted factors that contribute
to effective consultation processes in the context of collaborative group decision making a shared
understanding of the boundaries of influence of the group, commitment to implementing the outcomes of a
collaborative process, understanding the information needs of all parties and reducing information
imbalances, selecting participants that represent the wider interests of the community, and establishing clear
and transparent processes. (NZPC, 2014, p. 154)
Some of the spatial planning processes discussed earlier in this report have attempted to take a broad and
long-term view of their citys needs. The Commissions recommendations for greater central government
involvement in these processes (see Chapter 3) are intended to strengthen and bring the national interest
more squarely into the development and implementation of the plans.
There appear to be relatively few processes in the New Zealand planning system which encourage or enable
local communities to shape or make decisions. Structured in a way to include the whole community, greater
local involvement may help reduce resistance to intensification by giving communities more control over the
nature of change or the ability to seek improvements to local facilities to offset any lost amenity. Brisbane
City Councils neighbourhood plans are examples. (Box 9.2).
Box 9.2
Brisbane City Council neighbourhood plans
Neighbourhood plans are a mechanism that Brisbane City Council uses to help manage change
and accommodate growth and better protect valued environments at a local level. They are used for
areas experiencing considerable growth or change, or where growth is anticipated to occur. This means
that not all areas in Brisbane have or need a neighbourhood plan.
Extensive consultation processes that seek to overcome information imbalances support the
development of neighbourhood plans:
Community engagement and planning teams visit key neighbourhoods to talk about options for
facilitating growth. All Council planners are formally trained in consultation using International
Association for Public Participation frameworks.
The Council organises meet the planner days, where residents can discuss one on one the future
of their neighbourhood and their concerns.
Planning staff can use a Virtual Brisbane computer-generated 3D model to give residents a visual
sense of what new developments would look like.
A key element of neighbourhood plans is identifying new or improved facilities or planning controls to
protect amenities. These in effect act as incentives for greater intensification, and help reduce
opposition to development. For example, in return for greater density, the Chermside Centre
Neighbourhood Plan provides for:
local road improvements that maintain accessibility for residential and commercial uses
public realm and pedestrian and cycle connections to key destinations through the provision of
pathways and cross block links,
high quality built form enhancing the image of Chermside Centre.
Once neighbourhood plans are adopted, they form part of Brisbanes overall City Plan.
Source:
Brisbane City Council, 2015.
The Brisbane model is very resource-intensive, and reflects a different policy environment, in which the State
government sets growth targets for the city and the city council is required to give effect to them through its
planning processes. Even so, the concept of providing benefits (in the form of better facilities or
infrastructure) to offset any lost amenity that arises from intensification may be helpful in smoothing the path
for growth in cities such as Auckland.
Q9.2
Does scope exist to introduce mechanisms such as the Brisbane neighbourhood plans
into the New Zealand planning and development system? If so, how would it be
implemented?
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240
Other, less expensive ways exist to engage the community in deciding difficult trade-offs facing a city.
Auckland Council recently commissioned Colmar Brunton to conduct a representative survey of 5 000
Auckland residents, to seek their views on two funding options for the citys transport network. The survey
found that:
58% of survey participants favoured increased funding in transport to provide the more comprehensive
transport network that included new roads, rail, ferries, busways, park and rides, and cycleways, as
well as school and community travel plans and safety programmes (p. 4);
this option enjoyed support across all gender and age groups, with the exception of those aged over 70;
and
a majority (57%) of participants supported a motorway user charge of around $2 a journey to meet the
additional $300 million cost of the comprehensive option, compared to the alternative option presented
of a fuel tax increase and additional rates increase (Colmar Brunton, 2015).
Such surveys can help to offset the tendency of some groups being over-represented in planning
engagement processes.
F9.7
Tools such as statistically robust and representative surveys can help to offset the
tendency of planning engagement processes to be skewed towards particular segments
of the community.
A larger role for central government

In Chapter 2, the Commission noted that the decisions that a city might make about its growth may be at
odds with the interests of central government in maximising the benefits to the economy of a larger city size.
This could lead to a city being smaller than would be optimal from a national perspective, resulting in less
income and welfare for New Zealanders.
Local constraints on land and housing supply, and particularly issues in our largest city, clearly create
externalities for the wider economy. These externalities are discussed in Chapter 2 and include:
pressure on the Accommodation Supplement and other social services that result from localised housing
shortages;
risks of macro financial instability from increased house prices, and the effect of policies designed to
mitigate these risks;
the potential loss of agglomeration benefits to the economy from restrictions on growth and higher
living costs than are necessary; and
poorer housing outcomes, with particularly harms for those who are less well-off who may face
overcrowding or lower-quality dwellings.
There is a wedge between the preferences of central government around accommodating growth in our
fastest growing cities, and the preferences of local government. Beyond a certain point, the benefits of
growth accrue nationally, and the costs are felt locally. Kerr, Claridge and Milicich (1998) show that in this
situation, national decisions will lead to over-provision of a good, and local decisions will lead to underprovision.
Many of the recommendations outlined in this report will help ease constraints on the growth of cities.
However, these recommendations will not, on their own, override the tendency for local interest groups
especially homeowners and ratepayers to have a strong and constraining influence on plans. At its most
extreme, the inability of some fast-growing local authorities to zone, consent and service (with infrastructure)
sufficient effective land supply to meet demand can lead to significant shortfalls in housing and rapidly rising
house prices as currently seen in Auckland.
In Towards better local regulation, the Commission said that [w]hen the costs and benefits of a particular
outcome spill over outside local boundaries, then decision makers that cover the spillover should have
control over the regulatory policy (2013, p. 120).
The Commission also concluded that two questions to ask when allocating regulatory responsibilities locally
or centrally is Who bears the costs of the regulation? Are they represented in the region making the
policy? (2013, p. 199). A strong argument exists that those bearing the costs of regulatory constraints on
land supply (locally and nationally) are not effectively represented in local authority processes at present. A
greater balance between local and national interests is needed in the planning and development system.
Kerr, Claridge and Milicich (1998) argue that while the legal/institutional structure of devolution in the RMA is
basically sound, effective devolution requires careful attention to the relationship between central and local
government, as well as the location of decision-making. They offer a number of suggestions for how this can
work better, including:
Clarify responsibilities. Chapter 5 notes the need to clarify the place of housing and urban environments
in the RMA. There may also be insufficient guidance around the objectives or outcomes central
government seeks to achieve through devolution:
Problems can arise when central government intends local government to make decisions but does not
make this clear. Where it does want to influence local government, it should provide sufficient guidance.
Lack of clarity over responsibilities leads to situations where local government does not feel
empowered, and neither local or central government regards itself as fully accountable. (p. 44)
Improve formal and informal contracts between central and local government. The HASHA Act is a clear
attempt at addressing this. Chapter 4 also discusses the role that better specification of targets could
play in improving land release.
Attention needs to be paid to the incentives of each level of government to cooperate with the other
and meet their needs One aspect of the contract is the formal, written specification of expected
outputs, monitoring responsibilities and rewards. Perhaps an equally, and under-utilised component of
contracts is the informal contract that arises through long term personal relationships, corporate culture
and moral, trust and concern for reputation. (p. 44)
Reduce duplication of objective information and technical skills. This report considers there are
opportunities for councils to adopt better rules based on a full understanding of their costs and benefits
(Chapter 5) as well as processes that make better use of information and skills in planning large, fastgrowing cities (Chapter 3).
Strengthen the political accountability of local government. This divergence between local and national
interests in the growth of cities can be partly explained by the political economy of local planning. This
report argues that local government should prefer more growth than it appears to, and that this is
caused by local democratic failures that prioritise the views of those who see more cost to growth locally,
and does not adequately take account of those who see more benefit locally. Addressing those
problems of local political accountability, for example through better consultation processes (discussed
above and in Chapter 4) could go a considerable way to closing the wedge.
Any improvements in the local political process will enhance the benefits of devolution. In some cases
central government may decide that the poor political accountability of local government makes it
inappropriate for them to take certain types of decision. (p. 45)
The RMA is a highly devolved framework. In a case where the benefits are national and the costs local, one
solution would be to shift the locus of decision making to a national level, compensating local government
for the locally-felt costs. Central government may be better able to trade off the interests of existing
homeowners against renters, those in temporary accommodation, and those seeking to purchase a first
home, in part because of its broader democratic mandate.
Chapter 2 discusses research by Hsieh and Moretti (2015) which found that if the US cities with the most
regulated housing supply had those constraints lowered to the level of the median city, Gross Domestic
Product (GDP) would increase by 9.5%. The authors comment:
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242
In principle, one possible way to minimize the negative externality created by housing supply constraints
in high TFP [total factor productivity] cities would be for the federal government to constraint U.S.
municipalities ability to set land use regulations. Currently, municipalities set land use regulations in
almost complete autonomy since the effect of such regulations have long been thought as only local.
But if such policies have meaningful nationwide effects, then the adoption of federal standard intended
to limit negative externalities may be in the aggregate interest. (p. 35)
However, there are opportunities to improve the balance between local and national involvement in the
planning and development system, without shifting decision-making.
F9.8
Local land regulation can have consequences of national importance. If a faster release
of land is to be achieved, the balance between local and national involvement in the
planning and development system may need to shift.
Options to provide greater balance in the planning and development system

Central government in New Zealand plays a relatively limited role in city planning compared to other
countries, particularly where it comes to the preparation of plans:
Thus for example in the State of Victoria the Melbourne metropolitan strategy is prepared by the
Victorian State Government and it can only be changed by Act of the State Parliament. In Queensland,
the State Government prepares the regional plan for South East Queensland. In Canada, the Ontario
Provincial Government prepares the growth plan for the Greater Golden Horseshoe centred on the city
of TorontoIn England, on those occasions when submissions to a proposed regional spatial strategy
are to be heard (and not all of them are), then it is the Minister who appoints the hearing panel and the
Minister who makes a decision on amendments or otherwise to be made to the spatial plan as a result of
the hearing process. (Urban Technical Advisory Group, 2010, p. 14)
Central government has been active in the Canterbury rebuild and recovery, including in opening up new
land for residential development (Box 9.3).
Box 9.3
Ministerial powers under the Canterbury Earthquake Recovery Act 2011
Under the Canterbury Earthquake Recovery Act 2011, the responsible Minister has wide-ranging
powers, including the power to change local planning instruments. Three examples are noted below.
In October 2011 the Minister directed changes to the Canterbury Regional Policy Statement that
identified areas available for urban development, specified residential densities, required local
authorities to provide for sequencing of developments, and provided for form, design and
development plans to enable integrated management.
In November 2011 the Minister expedited plan changes to zone new residential land in
Christchurch, and lifted conditions that were delaying a development in Kaiapoi.
In June 2013 the Minister published a draft Land Use Recovery Plan (LURP). It was approved in
December 2013. The LURP provided direction for residential and business growth across greater
Christchurch. It identified priority areas for residential development, including areas already zoned
but not yet developed as well as new areas at Halswell, Belfast and Rangiora. In total, the Recovery
Plan provides for 30 600 sections by 2016 and 42 600 sections by 2028. A large number of changes
were directed to local District Plans, the Regional Policy Statement and other instruments, to give
effect to the LURP.
The circumstances that gave rise to the creation and exercise of these powers are unique. However, the
ability to expedite plan changes, provide significant tracts of residentially zoned land, and prioritise
infrastructure roll-out has contributed to greater Christchurch appearing on-track to have its housing
shortfall resolved by late 2017 (MBIE & CCC, 2015, p. 2).
Source:
CERA, n.d.
The RMA has always made provision for central government involvement and direction in the planning
system, in particular through the ability to issue National Policy Statements (NPS) and National
Environmental Standards (NES), which Regional Policy Statements (RPS) and District Plans must give effect
to. Amendments to the RMA since its introduction have strengthened central governments role, including
Ministerial powers to direct changes to plans, require information from councils and call in proposals of
national significance. However, these tools have not been used as extensively as was expected, and a
number of submitters and other commentators have found central governments actual involvement in the
New Zealand planning system to be wanting:
I think successive governments, both National and Labour-led, failed the Resource Management Act by
not providing enough central government guidance on vital mattersCentral government did not help
by resolutely refusing to provide national policy statements and not using its power to regulate to
provide uniform standards in areas where these were needed. (Palmer, 2013, pp. 13 and 15)
One of the undoubted root causes of local governments difficulties with the Resource Management Act
has been the lack of central government direction and assistance in its early years; a lack which has only
been partially alleviated by the introduction of new programmes (Urban Technical Advisory Group, 2010,
p. 16)
A major problem for the NZ planning system is a lack of national planning guidance, to help understand,
interpret and deliver on sections 5 to 8 of the RMA at a local level. Most national and regional guidance
provides little practical assistance to local government. (Allison Tindale, sub. 8, p. 3)
Greater national and regional planning guidance would provide greater assistance to local government.
(New Zealand Planning Institute, sub. 52, p. 3)
Central government has generally not been explicit about what it wants to achieve in terms of land use
management or how it wants to shape places. This has led to a separation of planning from
implementation and ad hoc and inconsistent decision making. (New Zealand Council for Infrastructure
Development, sub. 57, p. 10)
The lack of Government direction to consider one of the most basic needs of all communities housing,
has meant that planning has been carried out on a local basis without the benefit of a national planning
standard. (New Zealand Institute of Surveyors, sub. 74, pp. 12)
Some would argue that the biggest problem with the RMA is that the effects-based framework works
against strategic planning. This raises questions as to (1) whether a policy shift is required and (2) how
this can be achieved within the framework of the RMA. Greater central direction may be part of the
solution. (LGNZ, sub. 54, p. 6)
Options for greater central government involvement in planning exist on a spectrum, with Ministers
developing plans themselves at one end (as occurs in Australia and Canada) and central government having
clearly prescribed and limited override powers at the other end. The Commission does not consider that a
strong case exists for Ministers to take over developing and approving plans. Some degree of devolution is
clearly desirable in planning systems, as the best information about local needs and desires tends to reside
at a city or regional level. In addition, many of the costs and benefits of planning decisions accrue to people
living within those regions.
Box 9.4 outlines an example of central government guidance to local authorities in the United Kingdom.
Box 9.4
The United Kingdoms presumption in favour of sustainable development
The United Kingdoms National Planning Policy Framework is an example of national guidance for local
planning authorities in drawing up plans, and is also to be considered by decision-makers in
determining applications. The key part of the guidance says:
At the heart of the National Planning Policy Framework [NPPF] is a presumption in favour of
sustainable development, which should be seen as a golden thread running through both planmaking and decision-taking.
For plan-making this means that:
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244
local planning authorities should positively seek opportunities to meet the development
needs of their area;
Local Plans should meet objectively assessed needs, with sufficient flexibility to adapt to rapid
change, unless:
-
any adverse impacts of doing so would significantly and demonstrably outweigh the
benefits, when assessed against the policies in this Framework taken as a whole; or
specific policies in this Framework indicate development should be restricted.
For decision-taking this means:
approving development proposals that accord with the development plan without delay; and
where the development plan is absent, silent or relevant policies are out-of-date, granting
permission unless:
-
any adverse impacts of doing so would significantly and demonstrably outweigh the
benefits, when assessed against the policies in this Framework taken as a whole; or
specific policies in this Framework indicate development should be restricted. (para

14, p. 4)
A 2014 House of Commons Select Committee inquiry into the first two years of the NPPF noted
concerns from local residents, amenity groups and parish councils (p. 7) arguing that the NPPF was:
not delivering sustainable development;
failing to prevent undesirable and inappropriate housing development; and
giving insufficient protection to town centres against the threat of out-of-town development.
The Committee concluded that:

It is still early days for the NPPF. Given it represented a major consolidation of planning policy, it
will doubtless take several years to bed in fully. We have considered the concerns raised with us
about its operation. Many are significant and need to be tackled, but they point to the need for
adjustment, rather than a complete overhaul of the NPPF. It would be ill-advised at such an early
stage to consider tearing up the document and starting again. (p. 8)
Source:
DCLG, 2012; UK House of Commons, 2014.
There is a place for greater use of national guidance. One option would be to use existing national tools in
the RMA (eg, NPSs and NESs) to control or offset overly restrictive plans. This would avoid the need for
legislative change. However, these tools are arguably too blunt to deal with problems in an individual plan.
NPSs and NESs set principles or standards that all RMA plans and policy statements must give effect to, and
are therefore broad. The Minister can issue a NPS to state objectives and policies for matters of national
significance that are relevant to achieving the purpose of this Act (s52 of the RMA).
There are currently four NPSs:
National Policy Statement on Electricity Transmission;
National Policy Statement for Renewable Electricity Generation;
New Zealand Coastal Policy Statement; and
The National Policy Statement for Freshwater Management.
Councils must amend their RPSs, and regional and District Plans to give effect to an NPS, and decision
makers on plans, policy statements, resource consents and other matters must consider the NPS as part of
their decision-making process. It is unclear whether a NPS that emerged from such a process would have
sufficient detail and application to materially alter District Plans. Councils have considerable flexibility over
how they give effect to NPSs through their plans and policy statements.
Given the purpose of the RMA, which includes promoting development in a way that enables people and
communities to provide for their social, economic, and cultural wellbeing (s. 5), there appears to be scope to
consider a NPS on providing adequate land for housing. The Minister must establish a board of inquiry to
investigate a NPS, and the Act outlines the process for considering and establishing a NPS.
The process appears to be unwieldy, and some existing NPSs appear to operate at a high level and be
subject to considerable interpretation. According to a Ministry for the Environment discussion paper, it
typically takes three to seven years to develop a NPS, and putting it into regional and district plans can take
from three to 10 years (2013b, p. 21). The Commission is interested in submitters views on a NPS about the
adequate supply of land for housing.
Q9.3
Would there be merit in a National Policy Statement relating to the provision of

adequate land for housing? What would be the costs and benefits of such a statement?
Stronger Ministerial override powers appear to have more potential. The Housing Accords and Special
Housing Areas Act 2013 (HASHA Act) was a step in this direction, creating the ability for the
Governor-General to designate qualifying developments and special housing areas, where more
permissive planning rules and streamlined consenting processes would apply. Most local authorities who
discussed the HASHA Act were positive about it (eg, Auckland Council, sub. 71; Tauranga City Council,
sub. 47). However, the HASHA Act will begin to expire in September 2016, leaving a gap in the legislative
framework. 42 In addition, even if they were retained, the HASHA Act provisions probably do not provide
enough powers for Ministers to correct plans that consistently fail to provide enough development capacity.
Provided they can garner sufficient support in Parliament, governments have the option of overturning an
RMA plan through special legislation. This would have the merits of ensuring that any intervention was
subject to scrutiny by the public and all Members of Parliament. However, the time required to pass
legislation and the difficulties in getting new Bills onto a crowded Order Paper mean that governments
could lack a credible threat to encourage local authorities to make changes to unduly restrictive RMA
plans.
Under the RMA, the Minister for the Environment already has the power to direct a regional or city council to
prepare a new plan or make changes to an existing plan (section 25A). However, this power is limited to
requiring changes that address a resource management issue that falls within the specified statutory
functions of councils. None of those statutory functions relate to the provision or development of housing.
The Minister does not have the power to direct changes to RPSs, but they do have general powers to make
recommendations to a council regarding the exercise of its statutory powers and functions (section 24A). As
described in Chapter 3, a number of current and proposed RPSs now set rules and criteria for the release of
land that District Plans must give effect to. 43 Another option therefore would to be to expand the powers in
section 25A to:
enable the Minister for the Environment to direct changes to plans that consistently fail to provide
sufficient development capacity; and
explicitly include RPSs.
Greater central government involvement in planning is not without risks. The introduction of the Local
Government (Auckland) Act 2004 arguably exacerbated Aucklands housing supply problems, by restricting
the ability of territorial authorities or the Environment Court to expand the citys Metropolitan Urban Limit
and so tightening the supply of land.
42
The power to establish special housing areas will expire on 16 September 2016, and the rest of the Act will be repealed on 16 September 2018.
43
For example, the operative Bay of Plenty Regional Policy Statement and the proposed Waikato Regional Policy Statement.
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246
Q9.4
9.4
Would there be merit in expanding existing powers in the RMA to enable Ministers to
direct changes to District Plans and Regional Policy Statements that provide insufficient
development capacity to meet population growth? What would be the costs, benefits
and implications of such a move?
Do councils want their population to grow?
In a presentation to the Treasury in November 2014, Dr Oliver Hartwich of the New Zealand Initiative argued
that councils in New Zealand (as well as in Australia and the United Kingdom) lacked incentives to
accommodate growth. By contrast, he argued that local governments in Switzerland and Germany benefit
financially from population growth. They are therefore not only more accommodating of housing growth,
but compete for residents. Hartwich argued that despite the complexity of planning systems in Switzerland
and Germany, these financial incentives for local planners and politicians to attract growth have resulted in
insignificant levels of house price inflation.
Hartwichs presentation was an extension of his 2005 report with Alan Evans, Bigger Better Faster More: Why
some countries plan better than others (Evans & Hartwich, 2005).
In Germany, municipal governments receive a 15% share of federal income tax, directly linked to the
levels of income tax generated within the municipality, and grants received from state (Lnder)
governments, directly linked to the number of inhabitants in the municipality. In Dortmund, the report
outlines, 40% of the citys revenue depended on the local economys performance, or the number of
local inhabitants and the income tax they pay.
Decentralisation in Switzerland means that cantons and municipalities are largely autonomous in setting
their tax systems; together they receive more than two-thirds of Swiss income tax and social security
contributions.
The result is that the attitude of local planners and politicians is welcoming of growth, and growthenabling infrastructure can be financed from local taxes rather than through development charges.
There is no real house price inflation in Germany, although Switzerland has seen significant inflation in recent
years (Figure 9.7). Figure 2.23 shows that the burden of housing costs is still relatively high in Switzerland,
although not as large as in New Zealand, and Figure 9.7 shows that the long-run responsiveness of housing
supply to changes in price is very low in Switzerland.
Hartwich points to New Zealands weak localism as a major driver of house price inflation in New Zealand.
Local government spending as a proportion of GDP is the lowest in the OECD.
New Zealand is one of a small number of countries that raises most local government revenue from
property taxes (along with Australia, Ireland, and the United Kingdom.
New Zealand is unusual in that local government is responsible for an insignificant share of government
spending on health, education, social protection, and public order and safety (Hartwich, 2014).
Figure 9.7
House price inflation in selected countries
160
150
140
130
120
110
100
90
2003
2004
2005
Switzerland
Australia
Source:
Note:
2006
2007
2008
Germany
2009
2010
United Kingdom
2011
2012
New Zealand
2013
2014
United States
Productivity Commission based on data from Bank for International Settlements, 2014.
1. Indexed to 2003 = 100
Hartwich argues that greater devolution of revenue and expenditure to local government could reorient
council incentives to welcome and promote growth. A discussion paper from LGNZ makes a similar
argument:
Councils which compete for new inhabitants or new businesses and benefit from an expanding tax
base in doing so face incentives to keep taxes low. These councils also face incentives to make
conditions conducive to the activity they wish to encourage; for example, this might be to ensure local
planning allows the right kind of housing or zoning that releases land for higher valued uses or policies
that are business friendly. (LGNZ, 2015a, p. 65)
Donald Ellis made also made this point in his submission to the inquiry:
[T]he way the rating system works council revenue is not directly linked to the economic health of their
community. So success for a council is self-defined and has more to do with delivering promised outputs
within budget than achieving a measurable set of outcomes in the community. (sub. 44, p. 2)
Most councils told the Commission that they welcomed population growth and wanted to accommodate it,
but many pointed to the financial costs of doing so. The construction of new dwellings expands a councils
rating base, providing scope for increased expenditure over time, but this is a weak incentive.
Accommodating population growth is not seen as financially beneficial to local government, but as a drain
on resources.
At the same time, the Commission is mindful that many areas of New Zealand are experiencing long-term
population decline. These councils would prefer the problem of population growth to the problem of
attempting to maintain, or reduce in an orderly way, the level of services they provide to their communities.
F9.9
High-growth councils tend to see accommodating population growth or new housing

development as a net cost. The construction of new dwellings increases a councils
ability to fund expenditure from rating those properties over time, but overall the direct
financial incentives on councils to accommodate growth are weak.
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248
An LGNZ discussion paper on the funding of local government in New Zealand suggests a number of ways
to broaden local government revenue sources. The paper discusses taxes or transfers from central
government that would have the effect of rewarding councils for population growth or economic activity in
their locality. These might encourage councils to have a more positive attitude towards growth.
The LGNZ discussion paper is not the first to investigate the financing of local government, including
alternative sources of revenue for councils. The Shand Report (2007) notes the large number of inquiries into
local government financing (of which it was a further example):
1945 Local Government Committee (parliamentary select committee)
1958 Royal Commission on Local Authority Finance
19591960 Local Bills Committee Inquiry into the Structure of Local Government
1963 Committee on Local Authority Finance
19701973 Committee to Explore Local Authority Finance
1977 Committee on Local Authority Finance
19871989 Government Review of Local Government Structure and Funding.
The Shand Report also comments that [a]ll of the reviews have searched for an alternative to rates as a
major source of funding. All have concluded that rates were the best system available for the bulk of a local
authority funding stream (pp. 4950). The Shand Report did not vary from its historical predecessors in this
respect.
Linking local government revenue to population growth could help provide local planners and politicians
with incentives to be more accommodating of growth. It could also mitigate community opposition to
development. This could manifest in more liberal land use regulation, more timely processing of consents,
and, in turn, higher levels of residential development. There may be good reasons to reorient a greater
share of revenue and expenditure to local government. LGNZ intends to lead a discussion about these
issues in the near future.
But fundamental changes to the tax system, such as providing new tax powers to local government, ought to
be considered on their own merits from an economy-wide perspective, rather than through the narrower
lens of land supply for housing.
Similarly, giving local government responsibility for a greater range of public services ought to be
considered in terms of whether that would support the more effective and efficient delivery of those services,
rather than to justify providing councils with revenue sources that might make them more welcoming of
population growth. In a parallel inquiry into More Effective Social Services, the Commission (NZPC, 2015) in
its draft report has concluded that the case for large-scale devolution of responsibilities for social services to
local government does not appear strong. It would not resolve some significant problems of the current
architecture.
Payments for dwellings

If central government wants to see increased construction of dwellings, and local government controls the
major influences on dwelling supply, then one option is direct payments to local government for the
construction of new dwellings. This is the approach taken in the United Kingdom through its New Homes
Bonus Scheme (Box 9.5).
Box 9.5
The UK New Homes Bonus Scheme
The number of dwellings constructed in the United Kingdom in 2009 was the lowest in peacetime since
1924. Government projections indicated that an additional 232 000 homes needed to be constructed
each year to meet housing need. In this context, the UK Government set aside 1 billion between 2011
and 2015 to match the additional council tax raised by each council for each new house built for each
of the six years after that house is built.
In addition, a flat rate of 350 a year was provided for each new affordable home. Payments were
calculated from the number of dwellings in council tax valuation lists, so the replacement of homes did
not attract a payment, but the bonus was payable to empty homes that were brought back into use.
The bonus was funded by top-slicing existing government grants to councils. In this way, it represented
a pure transfer from councils that were producing fewer homes towards those that produced more.
The effect of the bonus was contended. A UK Housing Review Briefing Paper (Wilcox, Perry & Williams,
2014) said that the bonus had had little impact on housing supply:
Measures such as the reformed planning system, the New Homes Bonus and the stimulus
packages included in the government strategy Laying the Foundations, and augmented in the last
Budget, have so far had little impact on new housing supply. (p. 3)
A 2013 UK National Audit Office review of the scheme found little evidence that the Bonus had yet
made significant changes to local authorities behaviour towards increasing housing supply, and that
the evidence suggested the scheme mainly rewarded home creation that was not incentivised by the
Bonus. The review stated:
It is not possible to separate out the impact of the Bonus from other policies and wider factors
affecting housebuilding. Neither is it possible to robustly assess what the housing supply would
have been without the Bonus. (p. 20)
In 2014 the Department for Communities and Local Government (DCLG) published a long-awaited
formal evaluation of the scheme. It found that the scheme provided a clear financial incentive for
authorities, and that payments were largely matching the distribution of housing need, though there
were some areas of mismatch, in particular for London authorities (pp. 2-3).
The evaluation reported that 40% of planning officers agreed the scheme had made local officials and
politicians more supportive of housebuilding; but only 10% considered that it had increased support for
new homes in the wider community. The evaluation unable to clearly establish the effect of the scheme
on new home construction:
There are other challenges in being able to isolate the potential impact of the Bonus specifically
on attitudes and behaviours and subsequent housing outputs. There are a wide range of factors
which, over the period of the evaluation, will also be influencing attitudes and behaviours. These
include the state of the economy and housing market, wider planning reforms, house builder
confidence and changes in the state of local government finances amongst others.
As we are only four years into the programme the full effects of the policy are yet to be seen.
(pp. 12-13)
Source:
DCLG, 2014; Wilson, 2015.
The evidence from the UK New Homes Bonus Scheme does not provide support for the idea of direct
payments for dwelling construction to incentivise behaviour changes.
Only a minority of planners considered that it increased a councils incentives towards new housing
construction.
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250
Councils that had a generally negative approach to residential construction, but much activity, could
benefit (eg, councils that declined permission for dwellings, but were overturned on appeal, still received
the bonus).
It did not appear to increase community support for housing construction.
The deadweight costs were significant the vast majority of new homes attracting the payment would
have been constructed anyway.
No evaluation or review has been able to identify the effect of the scheme in terms of housing supply
(Wilson, 2015).
The effect of a home bonus might be different in a New Zealand context with different policy settings in
particular, if the scheme attracted new money rather than merely redistributing existing transfers to local
government. A scheme could be structured to provide bonus payments for dwellings above a certain
threshold, to reduce the deadweight costs involved. But the UK experience does not provide evidence that
any new money would be directed towards funding growth-enabling infrastructure, because it appears not
to have an effect on the attitudes of the local community towards residential growth. As a result, the UKs
New Homes Bonus Scheme shows insufficient benefits to recommend it as a policy worth pursuing in
New Zealand.
F9.10
9.5
Evidence so far from the UKs New Homes Bonus Scheme does not support introducing
central government payments to councils for new dwelling construction.
Land banking
Land banking is the acquisition and holding of land in anticipation of future use. A landowner may be a
farmer, investor or a developer; the land may be vacant or underdeveloped; and the land may be held in
anticipation of future development opportunities or for as long as the most profitable use is unclear (which
may be because of uncertainty about planning regulations (Evans, 2004).
Land banking is a type of speculation, although neither phrase should hold pejorative connotations.
Speculators play an important role in markets, providing liquidity and inducing production where there is
demand, at their own risk. In an unregulated land market, supply is fixed by natural geography (they arent
making any more of it). But when shortages of land for a particular use exist, speculation can signal that the
use of land for that purpose (such as housing) is a higher value use. This induces the switch of land from
other uses to housing. Importantly for this inquiry, in a regulated land market the effective supply of land is
fixed not by natural geography or the market, but by the regulator in New Zealand, by local councils.
In its 2012 report into Housing affordability, the Commission said that there is no easy way of determining
whether land banking is taking place or for what reasons (p. 118). In this inquiry, the Commission has
considered the factors that cause owners to withhold vacant land from development principally
expectations of future price growth and how owners can be encouraged to release or develop it.
As explained in Chapter 2, land parcels are heterogeneous because of the particular package of
characteristics and amenity associated with individual sites. Where no other similar sites are available, a
landowner can command a higher price because of the local scarcity of the preferred site. Where land
ownership is concentrated in a few hands in a neighbourhood, the effect of limited competition between
land parcels is exacerbated. Owners are able to limit the release of parcels of land to the market at any one
time so as not to affect the price by creating a local oversupply.
While the heterogeneous nature of land parcels and limited competition among landowners can make land
more expensive and generate economic rents, developers can also be constrained in their ability to
substitute between the inputs into the production of housing, which prevents them from using land
resources more efficiently. Typically the purchase of land comes with a set of ownership rights, 44 but also
restrictions about the uses to which the land can be put (including the intensity with which it can be
developed). For example, regulations might stipulate the maximum proportion of a site that can be built on
or whether multi-unit or high-rise buildings can be built. While this would reduce the development potential
of any one site because of restrictive limits on its use, such restrictions overall serve to reduce the number of
dwellings that can be built and so increase the price of all land parcels.
Mayer and Somerville (2000b) argued that residential construction does not respond to the level of real
house prices, but their rate of appreciation. Given that dwellings are reproducible and construction costs are
reasonably stable and not greatly affected by housing demand, it is the capital gains in land that drive
residential construction volumes. Ball (1988) argues that capital gains on land purchased for construction of
dwellings are the main source of profit for UK housebuilders, and that this has caused the industry to neglect
investing in technology, design and skills (which are more important in markets with stable house prices such
as Germany). Muellbauer and Murphy (2008) go further if the main source of profits for builders is capital
gains on section prices in the time between the land is purchased by the builder and the dwelling is built
and sold, then this can actually be counterproductive in terms of the supply response. Where builders see
larger than expected capital gains over three years or so, they may expect lower than expected gains over
the next three years (because of trend-reversion or housing cycles) and reduce supply accordingly.
Is land banking a problem?

Zoning and connecting developable land to infrastructure does not ensure that the land will be developed
for housing. The practice of holding land back was identified by a 2012 Victorian Parliamentary inquiry into
the liveability of outer suburban Melbourne:
The identification of land within the UGB [Urban Growth Boundary] or within a PSP [a Precinct Structure
Plan which outlines future growth along strategic transport corridors] does not necessarily mean that it is
ready for development. Land within PSPs is often held by a variety of owners including developers,
farmers, investors, and other private land owners, who are under no obligation to develop their land or
sell it to a developer. The PSP provides a framework within which these private land owners can operate
should they wish to develop the land. This has the capacity to increase delays in the development of the
land, decrease the supply of housing, and exacerbate the affordability problem. In addition, developers
are also entitled to retain their land until they wish to develop. The Committee notes that this situation is
not unique to Victoria. [The inquiry was told] that some developers in the outer suburbs of Perth are
currently holding their land back from development because they are waiting for prime market
conditions. He referred to this practice as land banking, stating that in some cases it is problematic for
service authorities, because it is difficult to time the provision of primary infrastructure such as trunk
mains. (Parliament of Victoria, 2012, p. 185)
Many submitters were emphatic that land banking was a problem in New Zealand. A. L. Christensen
submitted that the existence of land banking was patently evident, particularly in high growth and
demand areas. They submitted that in Takanini up to 90% of the developable rural land destined for urban
development is already land banked, concluding that [l]and banking is one of the scourges of land supply
for housing and there is nothing remotely philanthropic about it (sub. 7, p. 11). Registered Master Builders
submitted that
[i]t is easy to constrain the flow of land to the market. This constraint is possible because many local
development markets are dominated by a few larger players due to the huge costs and uncertainty
associated with development. There is little pressure on developers to bring land to market quickly
(other than to cash up), meaning supply can be intentionally constrained. (sub. 23a, p. 15)
The New Zealand Transport Agency submitted that land banking is an issue where developers may dripfeed zoned land on to the market to maximise the value of new sections (sub. 73, p. 7). Future Proof, which
represents councils in the Waikato region, submitted that land banking was a dominant cause of housing
affordability issues (sub. 39); SmartGrowth, a similar group in Tauranga/Western Bay of Plenty, also considers
land banking to be a concern (sub. 27). A report from Master Builders noted:
These property rights help to ensure that the market for land functions well. First, property rights define who derives the benefits and bears the costs of
using the resource. Second, the rights, privileges and limitations can be transferred through sale to a new owner, and the property rights are crucial to
determining the value of the land and therefore the sale price. Third, property rights define rights, privileges and limitations that can be enforced.
44
251
252
Several developers commented that land owners often held onto land for several years even after it was
rezoned residential, in the hopes of gaining a large windfall profit as demand built. Developers can also
hold onto land when demand is high, hoping that prices will rise faster than the holding costs of the
land. (Registered Master Builders & Construction Strategy Group, 2015, p. 31)
Queenstown Lakes District Council said:

A seemingly high dwelling capacity may have limited value if that capacity is tightly held by only a very
small number of landowners, with resulting land banking and speculation, and minimal release of land /
dwellings to the market. (sub. 56, p. 2)
In its submission on the Resource Management Reform Bill 2012, Foodstuffs pointed out that perceived land
banking can occur for legitimate reasons:
(a) In practice, what is termed land banking involves the early identification by prospective developers
or investors of land that is likely to become attractive for development in the future; the consolidation of
ownership of those properties; the provision of appropriate zoning where needed; and, in some cases,
the obtaining of resource consents. In many cases, those works occur many years before the market is
ready or able to accommodate the proposed development but they give the developer and the wider
community confidence that land can and in the fullness of time will be developed. Land banking is an
example of strategic thinking and forward planning qualities that are generally considered to be
beneficial.
(b) Holding costs on land are high. It is unusual for developers and investors to delay the
implementation of zoned and consented development other than where market circumstances indicate
that it is not economically viable to develop. In Foodstuffs experience, most developers and investors
would prefer to develop land relatively early and thus minimise holding costs and release the funds for
investment in further development elsewhere. (sub. 50, p. 15)
Land banking is a rational practice in the face of expected future land price growth. The pattern of land
banking is different across New Zealand cities.
Auckland
Auckland Councils Capacity for Growth Study 2012 (2013e) identified 5007 vacant residentially zoned
sections within already built-up areas of the city, of which 3 238 had been vacant since at least 2006. A
subsequent study by Memon and McFarlane (2014) interviewed 29 owners of those long-term vacant
sections. While the majority of owners indicated an intention to develop or sell the land in the future, they
identified a range of explanations for why the land was vacant, and identified perceived barriers to
development. These included the rising costs of building, costly and time consuming council processes,
access to finance, lifestyle reasons, and the future capital gains available by land banking. The authors
conclude that
[t]he alternatives of land banking and land speculation appear much more appealing seen against the
backdrop of these perceived barriers. Likewise, land owners have had little incentive to sell their vacant
land in the current market or when they do offer to sell, it is at an uncompetitive price. Vacant land has
become an object of speculative investment for its own sake, instead of for its value in providing
housing for Aucklanders. (Memon & McFarlane, 2014, p. ii)
Analysis of the Auckland Council District Valuation Roll shows that there are 12 013 individual vacant sections
suitable for a single dwelling. It also shows that most of the land that valuers consider to be bare or
substantially unimproved land, which is likely to be subdivided into dwelling house sites (this is coded RB
land (Land Information New Zealand, 2010, p. 64.)) is held by a very large number of owners rather than
concentrated in a small number of hands (Figure 9.8).
Figure 9.8
Size of landowners total holdings of bare land suitable for subdivision for housing
Percentage of owners of RB land
40
35
30
25
20
15
10
5
0
Size of RB landholdings (hectares)

Source:
Productivity Commission based on Auckland Council District Valuation Roll.
Notes:
1. The graph shows owners total landholdings, which may not be contiguous.
2. The scale on the landholding axis changes beyond 20 hectares.
3. Valuers categorise all land based on its highest and best use, or the use for which the property would be sold given the economic
conditions prevailing at the effective date of valuation. This may be different to its current use. RB land is categorised as bare or
substantially unimproved land, which is likely to be subdivided into dwelling house sites.
This graph shows that more than one third of the approximately 587 owners of RB land each have total
holdings of less than 2 hectares. More than 94% of owners of RB land have holdings of less than 20 hectares.
Based on Hobsonvilles density of 18 dwellings a hectare, and assuming that the landholdings are
contiguous (which in many cases will be unwarranted), more than one third of owners own land that could
hold 36 dwellings or fewer; a further 22% of owners own land that could hold between 36 and 72 dwellings;
and a further 20% own land that could hold between 72 and 108 dwellings. Only 6% of owners could build at
least 360 dwellings, and only one landowner of RB land has a total holding that is as large as the area of the
Hobsonville Development.
The total bare land in Auckland that is considered suitable for subdivision for housing covers approximately
3 600 hectares. MBIE reported in February 2013 that about 560 hectares of this bare land has bulk clean
water and wastewater supplies to the property boundary, with capacity for around 14 500 dwellings (MBIE,
2013).
This means that although individual owners may have an incentive to hold undeveloped land in anticipation
of future price rises, in Auckland developable land is not held by a small number of owners who are able to
dominate the market.
F9.11
Auckland has a large number of owners of bare land suitable for subdivision and the
construction of dwellings. No evidence exists that a small number of owners have a
dominant position in the Auckland market.
253
254
Special housing areas

The Commission was told several times that much of the land within Aucklands Special Housing Areas
(SHAs) was not being developed, and was instead being banked or sold on for profit without the intention
of developing it. The New Zealand Housing Foundation submitted that
[t]o date, 80 special housing areas with the potential for 41,500 dwellings have been created in
Auckland, however, only 350 houses have been built. Anecdotal evidence suggests some developers
(and land bankers) who own land within the special housing areas are gaining consents for their
properties and holding their properties waiting for values to rise. (sub. 69, p. 14)
Auckland Council has emphasised that dwellings realisation can take more than two years from the approval
of a SHA. They say:
Even with the best possible regulatory and planning processes in place, there will always by necessity be
a time lag in the delivery of new homes to the market. Gaining consent for a development is just one of
the many steps a developer or builder has to take to complete a dwelling. (sub. 71a, p. 2)
Consents granted under the HASHA Act must be exercised within a year (rather than the standard five years)
or else they lapse. The March 2015 MBIE & Auckland Council report on the housing accord states that
consents for 747 dwellings/sections have been approved.
At present, it is difficult to evaluate whether the lack of building is a significant problem, or whether it is
merely a lag in consents and construction. Conceivably, the shorter period before consents lapse could
cause developers to delay seeking consents until preparations for construction are more advanced. Owners
of land within a SHA in some cases may be able to realise greater value from the land as a result of the
streamlined planning requirements. But, otherwise, they have similar incentives to hold or develop land as
other landowners.
Wellington City
The Commission was told that within the boundaries of Wellington City,
[t]he greenfield housing market is largely controlled by two developers who usually sell the land as land
and house packages. Between them they release only about 100-150 allotments/houses onto the
market per year. During the GFC, these figures were halved. In these circumstances, relatively high
house prices can be maintained through land-banking and controlling the supply of housing to market.
This is not necessarily land banking in the traditional sense, but rather limiting the release of land to
control financial risk. (Wellington City Council, sub. 21, pp. 11, 5152)
Another submitter says that the Council is to blame for this situation:
One property developer who bought two large farms in Wellington North around 1980 has had a near
monopoly on the supply of greenfields housing in Wellington since the 1990s as the Council has
refused to enable any more leapfrog development. (Philip Hayward, sub. 41, pp. 6263)
Despite this, Wellington house prices have not increased as dramatically as in Auckland. A large explanation
for this is the significantly smaller population growth rate, combined with a regulatory environment that is
more enabling of secondary units (granny flats/house and income units), and both medium-density and highdensity dwellings. Wellington City Council submitted that 77% of their new dwellings are infill, mediumdensity, or central city apartments (sub. 22).
Christchurch
In Christchurch the Commission was pointed to the 4.5 hectare vacant ex-Addington Sales Yards as an
example of land banking that frustrates the local council (Box 9.6).
Box 9.6
Source:
Addington Sale Yards
NCSphotography. Used in accordance with the Creative Commons License 2.0

https://creativecommons.org/licenses/by/2.0/
Between 1874 and 1997 the Addington Sale Yards adjacent to Hagley Park was the hub of Canterburys
livestock trading. When the sale yards relocated to Wigram, the Addington site would have been a
prime candidate for redevelopment, but it has since remained vacant. The Greater Christchurch Urban
Development Strategy described the situation as follows:
The 4.5ha former Addington Sales Yard site is the largest undeveloped/underutilised site on the
fringes of Hagley Park - Christchurch Citys signature open space.
Previously used, up until 15 years ago for the sale of livestock, it has remained undeveloped since
that time despite approaches for its re-use for a range of purposes, not least medium density
residential development for which it is zoned.
The site was purchased in the late 1990s for a commercial use of the site but this project fell
away in light of the difficulties posed by the long standing residential land zoning. Periodic
approaches, never formalised in the form of consents, for commercial uses on the site continued in
the 2000s. In more recent years, at least three developers pursuing mixed use schemes involving
residential uses have approached council for preliminary discussion. However, these have fallen
away in light of an inability to reach a deal with the landowner on price. In 2013, responding to the
potential decanting of car sales uses from the South Frame area designated in the Christchurch
Central Recovery Plan, a scheme for 10 car dealerships was submitted for resource consent. This
was understood to have the landowners support. However, being entirely at odds with the zoning,
the application was withdrawn, prior to being refused following public notification. The most
recent approach, involving a hotel, 100-120 high value, high specification apartments and park
edge retailing (with a visitor hospitality focus) was well advanced by a speculative developer
working with a high quality architect. However, once again the price being sought for the land was
unrealistic leading to the project being shelved.
The site was purchased in 1997 for $4.56 million. It has a current land value of $12.6 million with no
improvement value, and a yearly rates bill of $78 821.41, which is equivalent to 0.6% of the land value.
Source:
Greater Christchurch Urban Development Strategy, sub. 18a.
The Commission was pointed towards other examples of land banking in other urban centres, including
Tasman District, Tauranga City and Queenstown Lakes District.
F9.12
Land banking is occurring in many urban areas of New Zealand. Land banking need not
require a dominant market position, only that the expected increases in land value are
greater than the holding costs of land.
255
256
Studio D4 described the incentives on landowners in Auckland, an environment where supply is constrained
by regulation, as follows:
[T]he Planning Regime of the Regional Growth Strategy (RGS) resulted in insufficient development
land being zoned, relative to demand.
The scarcity has led to the power being in the hands of those that control the land. Essentially almost all
owners of suitably zoned land have seen their prices escalate rapidly, as a scarce resource is demanded
by more and more people.
Unfortunately some owners have seen this increasing power position, as an ability to ration supply
even further to the point, where the ever increasing demand for their scarce land holdings has seen
them either achieve, or attempt to achieve, what can only be fairly termed as superprofits. This is
where the returns are so high, relative to the initial capital provided and the risk taken, that this sort of
opportunity must be reduced or eliminated for a future efficient functioning market place. (Studio D4,
2013, p. 37)
Philip Hayward submitted that the effect of an urban growth boundary around a city is effectively the
imposition of a quota of land within which participants in the urban economy must fight pricerationing battles for a share without regard to any factors beyond the victory of the deepest pockets.
under these conditions, the owners of developable land cease to behave like the rational participants
in markets that are assumed in economic theory, whereby the market merely allocates land to best
use; and behave instead like the holders of a speculative commodity such as gold. (sub. 41, pp. 5 and
13)
Glaeser (2013) reviews a series of real estate convulsions in the United Sates from the 1790s to the Great
Housing Convulsion that precipitated the recent Global Financial Crisis. He argues that while housing
booms have unclear causes, they all end in the same way:
There is no obvious common source of buyer over-optimism during booms, and simple models, such as
extrapolating future growth rates, are usually too weak to definitively warn against over-paying. There is
however a common mistake: ignoring the impact that added supply will have on long-term price. This
ordinary, understandable error can increase the volatility of housing prices and raise the costs of policies
that artificially induce leveraged speculation on real estate. (p. 4)
Expectations of future price increases will encourage land banking, but those expectations are typically
shattered when supply increases.
Many things are similar between the most recent boom and previous events. Rising prices are most
strongly associated with optimistic expectations, and credit market conditions more typically played a
supporting role.
Booms end when these optimistic projections fail to materialize, at least in the short run, but in many
cases, the shocks seem like they should have been predictable to a forecaster with a Marshallian
appreciation for the power of long-run elastic supply. In the recent boom, sufficiently well-informed
buyers in Las Vegas presumably should have recognized that Americas incredible abundance of desert
space would ultimately limit the long run value of homes on the urban fringe of that metropolis.
The difficulties in forecasting the impact of supply are both understandable and hard to arbitrage. (p. 40)
The effective supply of land in New Zealand is inelastic it is in practice entirely controlled by local councils
through land use regulation. If those regulations change, such that developable land is no longer scarce and
expectations of future increases in land prices are undermined, then much land banking will cease to be a
reasonable and rational practice. Some sites may be of unique amenity where an owner might continue to
land bank, but most landowners would not continue to expect future increases in land values and would face
far stronger incentives to develop.
F9.13
Land banking is a symptom, rather than a primary cause, of land supply constraints. In
New Zealand those constraints are the result of local regulatory and investment
decisions.
The best way to tackle land banking is to increase the amount of land available for development and the
amount of development that can take place on land through more permissive land use regulation, and
removing barriers to servicing land with infrastructure. Where developable land is no longer seen as scarce,
owners will see less value in holding it.
Holding costs on land

Increasing the cost of holding undeveloped land can also encourage owners to develop or release land.
Holding costs are the costs of carrying land, including the cost of finance and rates. Some studies include
other costs like acquisition costs and developer charges as holding costs. But as these are one of costs that
accrue regardless of when development occurs, they are not properly holding costs.
Because land development is a commercial enterprise, good information about holding costs is hard to
obtain. Various developers have offered to provide to the Commission in confidence information about
costs of development (including holding costs), but are unwilling for it to be quoted because of commercial
sensitivities; it is also difficult to verify independently.
The literature on holding costs typically describes the effect that delays in approval processes have on
planned development. Box 9.7 provides some estimates of holding costs.
Box 9.7
Some estimates of the holding costs of land
Todd Properties submitted to the Commissions 2012 inquiry that a six month delay added $30 000
to the cost of an apartment.
One paper described a series of case studies of developments in Queensland, and found holding
costs to be typically A$15 000 a lot, with modelling suggesting that a six month delay in receiving
approval cost the equivalent of A$5 000 a lot (Garner, 2012).
Developers reported to Grimes and Mitchell that in the more extreme cases the delay in obtaining
consent added more than 3% to the total costs associated with the project (2015, p. 38).
The submission from Registered Master Builders said that a delay of 18 months added holding
costs of $15 000$20 000 for each unit in a 10 townhouse development (sub. 23).
Source:
Garner, 2012; Grimes & Mitchell, 2015.
The holding costs of land which is held as an investment (ie, land that is banked) are effectively the same: as
financing costs and council rates. But the literature has little discussion on the impact of holding costs during
a time of significant increases in land value. 45 Holding land will be rational as long as expected land value
exceeds the discounted stream of expected holding costs. Given current council regulatory policies, the
widespread expectation is that land will continue to increase in value in Auckland; and the costs of holding
land are particularly low at present given current interest rates.
The assessed value of bare land suitable for subdivision in Auckland increased by 93% from 2011 to 2014. In
this context, any reasonable estimation of holding costs is unlikely to dissuade those who can from
continuing to carry land.
F9.14
The holding costs of land, including rates and financing, are low relative to Aucklands
current rapidly inflating land values.
Land zoned residential in Auckland in 2014 was valued on average 49.5% more than it had been in 2011; land zoned residential in Wellington in 2012
was valued on average 0.1% more than it had been in 2009.
45
257
258
9.6
Options to encourage the development of land
A number of policy settings would influence a landowners incentive to develop land, at the margin. This
section considers four:
the valuation basis of councils general rates;
land taxes;
tax breaks for development; and
charging rates on Crown-owned land.
Valuation basis of general rates

Council rates are a type of property tax, levied on land value or the value of land and improvements,
augmented by various rating differentials and targeted charges. In its 2012 report on Housing affordability,
the Commission noted that local rates are simple, broad-based and relatively efficient. The Commission did
not consider rates to be a significant influence on housing affordability (although noted they could cause
strain for homeowners with limited incomes).
For Councils, decisions about the valuation basis of rates are a way of allocating a fixed revenue burden
across ratepayers in their community. They naturally seek to do this in a way that maximises the ability of
ratepayers to pay their rates, and produces the least amount of hardship or objection. But councils do not
appear to place much emphasis on the other effects of choosing between different valuation bases for
rating, including the effects on landowners incentives to release land for housing.
New Zealand is unusual in giving local authorities the ability to choose the basis on which they levy property
taxes (rates). Since 1896 councils have been able to choose between:
capital value, being the value of land and improvements;
annual value, which is the greater value of either the estimated gross yearly rental less 20% (or 10% if
there are no buildings on the land) or 5% of the property's capital value; or
land value (originally called unimproved value).
The option of rating based on land value was new in the 1896 legislation, and until 1976 councils could not
switch to land value without a referendum, though they could switch freely between capital and annual value
rating. Despite this additional hurdle, land value rating proved popular. McCluskey, Grimes and Timmins
(2002) note:
After 1896, with the advent of three recognised systems of rating available to local authorities, there was
a steady move away from annual value and capital value rating to unimproved value rating. By the
Second World War, land value based rating had become the dominant system, and this trend continued
through to the 1980s. However, since 1985 there has been a noticeable swing back towards the use of
capital improved value. This is more evident in larger areas. (p.3)
In 1985, approximately 85% of councils were using land value and 10% were using capital value; by 2006/7,
the Shand Report records that only 42% were using land value and 52% were using capital value. Since then,
government legislation has required that the new Auckland Council use capital value (at least for the first
year when the local councils merged) with the North Shore having previously used land value. Hamilton City
Council has recently decided to shift from land value to capital value.
Auckland Councils Housing Action Plan (2012d) said that the Council would investigate ways rating policy
could be changed or improved to incentivise development of undeveloped land in existing urban areas and
greenfields (pp. 2223).
In its issues paper, the Commission noted that rating based on land value, rather than capital value, could be
expected to encourage land improvement, including the construction of housing, and could discourage the
holding of unimproved land. Hamilton City Councils recent adoption of capital value rating provides an
illustration of the potential impact (Box 9.8).
Box 9.8
Hamilton City Councils shift from land value to capital value rates
Hamilton City Councils document proposing a shift from land value to capital value rating notes that
[i]t may inhibit development of property to avoid paying more rates (Hamilton City Council, 2014,
p. 6). On the Hamilton City Council website, the addresses of any property can be entered to see the
effect of the rates switch. The Commission examined the implication of the switch on the rates for a
number of Hamilton properties advertised for sale.
The effect of the switch will be to reduce the carrying costs of undeveloped or underdeveloped land. A
large (14 636 m) undeveloped residential section in Hillcrest, Hamilton East will see its rates decrease
by 47% over 10 years, from $18 088.21 a year to $8 654.79 a year. A vacant 474m section in Nawton will
see its rates decrease by 52%, from $1 638.40 a year to $789.39 a year. A large (6 000 m) section at
Rototuna on the edge of the city, with one current dwelling, will see its rates decrease by 18%, from $4
397.38 a year to $3 180.70 a year.
By contrast, rates on more intensive developments generally increase. A block of six older flats in
Hamilton East would see its rates increase by 29%, from $3 186.81 a year to $4 102.53 a year. A large
modern townhouse in Claudelands that covers virtually its whole site would see its rates increase from
$1 161.07 a year to $2 028.07 a year.
Source:
Hamilton City Council, n.d.
Land taxes and land value rating

The idea of a tax on the value of land was popularised in the 19th century by Henry George, and is
supported by many economists because of its efficiency:
A land tax does not distort investment behaviour as it applies to land which is in fixed supply. This
creates a tax liability regardless of whether or how well the land is used. As the supply of land is
perfectly inelastic (fixed in supply), market prices depend on what purchasers are prepared to pay rather
than on the expenses of land owners. Accordingly, land taxes cannot be passed on and would be borne
by land owners at the time the tax is announced. (IRD and New Zealand Treasury, 2009, p. 2)
Land value taxes are extremely efficient because they cannot be avoided, or passed on. They are particularly
attractive in the context of this inquiry in that they encourage (or rather, do not discourage) improving land:
The main advantage of site value [land value] taxes is their potential for improving the efficiency of land
use. Site value, in principle, taxes the location rents (the return from a particular location regardless of
the improvements to the site). If improvements are not taxed, the owner has an incentive to develop the
land to its most profitable use. Compared with a property tax that discourages investment in property, a
site value tax will encourage building and improvements. (Slack, 2006, p. 203)
This is supported by modelling undertaken by Brueckner (1986) and DiMasi (1987) which find increased
development, higher density and lower house prices as a result of land value taxation, as well as evidence
from changes to property taxes in Pittsburgh (Oates & Schwab, 1997). Philip Hayward submitted that
[s]imple fiscal incentives to increase the efficiency of use of land, are recommended by virtually all these
authors [Alain Bertaud; Cheshire, Nathan & Overman; and Alan Evans] and by significant experienced
urban economists in the US such as Edwin S. Mills and Alex Anas. That is, proper pricing of infrastructure
use related to the cost of provision; road pricing; and shifting the burden of taxation off structures and
onto land. (sub. 41, p.3)
Not everyone agrees. Covec (2007) reports:

Some commentators claim that, unlike land value, capital value and annual value create disincentives to
develop land or improve buildings. While this may be true (at least in theory), I doubt its practical
significance. The incremental effect on rates of improving an existing building would be very minor. (p.
37)
259
260
Tasman District Council submitted that Whether rates (a property tax) are set on the basis of land value,
capital value, or annual value, has no effect on the release of land on to the market (sub. 25, p. 11).
The Commission disagrees. Choice of valuation base for rating does provide an effect at the margin that
encourages either holding or developing vacant land. In the context of the holding costs described above,
the effect of the rating changes in Hamilton is small but real. If carrying costs for a vacant section are
assumed to be about $10 000 a year (see Box 9.7), then an $850 increase (as in the Nawton section described
in Box 9.8) increases holding costs by 8.5%.
Capital value rating, compared to land value rating, does tend to increase the rating burden on denser
dwellings, and make it more affordable to carry undeveloped, and underdeveloped land. IRD and the
Treasury in their briefing to the Tax Working Group were blunt in their assessment of a tax on the value of
land and improvements (which they describe as a property tax):
A property tax is calculated by reference to the value of land and any buildings or other improvements
on it. It may therefore disincentivise landowners from investing in improvements on the land.
A property tax may push up rental costs, and housing costs for owner-occupiers no such effect is
expected for a land tax.
A property tax will reduce investment in housing.
We are not aware of any prima facie case that a property tax would be desirable, so property taxes are
not discussed further. (IRD & New Zealand Treasury, 2009, p. 4)
Yet this sort of tax is increasingly favoured by councils in New Zealands fastest-growing urban areas: a rating
methodology that raises housing costs, discourages development and reduces investment in housing.
F9.15
The use of capital value rating systems makes it marginally less expensive to carry
undeveloped and underdeveloped land. The use of land value rating systems would
encourage land flowing to its highest value uses, including more and denser housing.
Why has capital value rating been increasing?

The 2007 Report of the Local Government Rates Inquiry (the Shand Report) recommended the promotion of
a common system of valuation for rating purposes, and strongly favoured a capital value system.
Ability to pay
The major benefit cited for capital value rating was its fit with residents ability to pay. For example,
Wellington City Council submitted that it is assumed that people who own higher value properties also
have a higher ability to pay than people who own lower valued properties (sub. 21, p. 52).
This criterion was strongly weighted by the Shand Report. Comparing meshblock income against the land
value and capital value of properties in meshblocks, the Shand Report found a slightly better fit between
income and capital value than income and land value, and so considered capital value to be more
progressive. However, in the Commissions view too much emphasis was put on the slightly greater variance
in the relationship between income and land value. The relationship is strong for both comparisons, and the
Covec report (2007), from which the Shand Report draws its analysis, does not conclude on the basis of these
two comparisons alone that one should be considered more progressive.
In fact, when Covec plots that data against income deciles under each valuation system, it comes to the
opposite conclusion to the Shand Report:
[W]e plotted the distribution of property values against income deciles [by meshblock] under each
valuation system. Ignoring any differentials, these directly indicate the funding burden that each income
decile will bear.
As we can see lower deciles account for higher shares of CV [capital value] and AV [annual value] than
they do of LV [land value], and vice versa for higher deciles. Thus, ignoring any differentials, LV is more
progressive than CV, which is more progressive than AV. But what explains these distributional
variations? Differences in the distribution of LV and CV stem from the fact that the ratio of improved
value to land value falls as income increases. From this it follows that lower deciles account for a higher
share of capital values than they do of land values. (2007, p. 33)
Figure 9.9 from the Covec report illustrates this point starkly. Low-income deciles have a smaller share of
total land value than capital value; high-income deciles have a greater share of land value than capital value.
Figure 9.9
Distribution of property values across income deciles

20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
1
Annual value
Source:
5
6
Income deciles
Capital value
10
Land value
Covec, 2007.
The graph indicates the share of property values, under each valuation types, across meshblocks sorted into
income deciles. In turn, this shows the share of a general rating burden under each valuation basis. Ignoring
differentials, the lowest income meshblocks would bear a larger share of the rating burden under a capital
value system than a land value system. By contrast, the highest income meshblocks would bear a smaller
share of the rating burden under a capital value system than a land value system. This mean land value is a
more progressive valuation base for rating purposes, and a better fit for ability to pay.
This conclusion is also supported by a 2004 study by Kerr, Aitken & Grimes and a 2006 study by McCluskey
et al. McCluskey et al. found that, within New Zealand territorial authorities, the ratio of improved value to
land value falls significantly as income rises:
This result in fact holds in every territorial local authority and in every time period, so is highly robust
These results indicate that a land value tax is more progressive than a capital improved value tax. For a
fixed amount of total revenue to be raised, high income people tend to pay more tax in a land tax
system because the value of their land relative to the capital value of their properties is greater than the
ratio of total land value to total capital value in the TLA [Territorial Local Authority]. (McCluskey et al.,
2006, pp. 39293)
The reason for these findings is intuitive: high-income people tend to live in desirable parts of town, where
land is more expensive and, although their homes are also more valuable, the land value effect is stronger.
Based on the analysis of Covec, and that of McCluskey et al., land value rating systems are better than
capital value rating systems against an ability to pay criteria, and are a more progressive form of rating.
F9.16
Rating based on land valuation appears to be a better proxy for ability to pay than
rating based on capital valuation.
The Shand Report (2007) noted the particular public concern around the ability of asset-rich, cash-poor
ratepayers, many being retired. However, it was satisfied that adequate policies were in place to mitigate
these concerns:
However, there are three key measures that can potentially provide assistance to these ratepayers. First,
there is central governments rates rebate scheme. Second, councils may have rates postponement and
remission policies. Finally, property-based equity can be drawn down using equity release schemes.
(Shand Report, 2007, p. 127)
261
262
LGNZ (2015a) notes that take-up of these schemes by ratepayers has been low. They report that in 2007 only
46% of eligible ratepayers took advantage of the rates rebate scheme, in which the government covers part
of the cost of rates paid by low-income ratepayers. They reported no significant increase since then.
Some councils, including Auckland Council, offer rates-postponement schemes so that residents aged over
65 can accrue the cost of rates against the value of their estate, to be repaid when the property is sold. A
typical arrangement might be to charge interest at the councils borrowing rate plus 1.25% (to cover
administration costs and bad debts), plus a one-off application fee of $200$300 and a yearly charge of $50.
However, different councils have different eligibility criteria.
Councils told us that, in general take-up of this is also low, and that, where residents are eligible and
participate in the rates-postponement scheme, it works well for both the ratepayers and the council.
A low level of participation in these schemes may indicate a lack of awareness of these initiatives, that the
problem of retired people struggling to pay rates is not as great as may be thought, or that the combination
of interest and charges makes them unattractive.
The choice between land value rating or capital value rating does not itself affect asset-rich, cash-poor
ratepayers differently to any other ratepayer. However, to the extent these ratepayers own valuable land that
could carry more development, land value rating provides an incentive for this land to be developed in due
course. In the case of retired people, rates-postponement schemes mean that this need not occur during the
ratepayers lifetime, unless they choose to sell or develop the land themselves.
F9.17
Central government rates rebates, local government rates-postponement schemes and

private reverse-equity loans provide mechanisms to assist asset rich but cash poor
ratepayers to pay rates.
Reliability of valuations
Another reason commonly cited in favour of capital valuation is the relatively better data that underpins
capital valuations, because fewer sales of bare sections reduce the ability of valuers to gauge land values.
Annual value rating is better still, because the compulsory lodging of tenancy bonds provides highly
accurate information about market rents.
The Commission has not found good evidence that land valuations are less reliable than capital valuations.
One piece of evidence is from a 2007 report by Covec (Box 9.9).
Box 9.9
Some evidence on the reliability of land valuation
Covec analysed the sales data for an unnamed large city, comprising 17 824 sales over 22 months. They
compared average sales price to average valuation, and found large differences.
Figure 9.10
Comparison of actual sales prices against assessed values in one New Zealand city
Dwellings and flats
Rental flats
Home and income properties
Vacant land
Bare land
-10%
0%
10%
20%
30%
40%
50%

Note:
1. Vacant land means a section on which a single dwelling could be built. These are likely to be a vacant section in an otherwise
built-up area. Bare land is land that is ready for subdivision into sites for a number of dwellings. These are likely to be
greenfield sites on the fringe of the city.
The time period over which the sales took place is not stated. Nor is the city to which the data refers. The
report is from 2007, but the data might be older. Without knowing how close the data was to the end of
the last housing boom, or to the most recent valuation update, it is difficult to interpret the data.
However, it appears to show that vacant sections and bare land suitable for subdivision was undervalued
for rating purposes compared to their market price in the sample studied.
Source:
Covec, 2007.
If land values are less likely to be accurate than capital values, that does not necessarily mean that a capital
value rating system should be preferred. Because rating is only a mechanism to allocate a revenue burden
between ratepayers, valuation errors only matter for rating purposes to the degree they are different from
each other for different categories of properties. For example, if all properties of all types are undervalued
by 15%, this does not impact the rating burden of any individual ratepayer. By contrast, if one category of
property is undervalued, then owners of those properties pay lower rates than they would if assessed values
fairly reflected genuine market values. It is the variance of assessed valuations that matters.
Q9.5
What reason is there to think that the variance around assessed land values is different
to assessed capital values?
For example, if vacant or bare land is systematically assessed at a lower value than its market price, then it
has different implications depending on the rating model a council adopts.
Under a capital value rating system, this is likely to result in owners of vacant and bare land paying lower
rates than they should, and owners of sections with dwellings paying more than they should, if rates were
based on market values rather than assessed values.
Under a land value rating system, the land value component of improved properties is inferred in part
from the assessed value of nearby vacant land. The systematic error in valuing vacant or bare land does
not lead to owners of vacant or bare land paying less than they should, if rates were based on market
values rather than assessed values.
It is commonly argued that the valuation of land is less reliable than the valuation of sections with dwellings
on them. But this does not necessarily mean that capital value rating should be preferred to land value
rating. In fact, if all land in a territorial authority is undervalued, then the distortionary effects of this in terms
of the burden of rates may be more significant under a capital value rating system. Additionally, under a land
value rating system, valuers may need to pay more attention to the accuracy of assessed land values than
under a capital value rating system, which should improve the accuracy of assessed values.
F9.18
The distributional effects of a systematic incorrect valuation of land on the rating burden
may be greater under a capital value rating system than a land value rating system.
Matching of funding with benefits received

The final argument commonly used to support capital value is that it is a better fit for benefits received.
Covec puts the argument neatly:
Land values are likely to provide a poor match between funding and benefits received. To see why,
consider the following example. Suppose a district contains two identical lots, one of which contains an
occupied dwelling and one of which does not. It seems fair to conclude that, for the majority of council
services, the occupied dwelling will receive more benefits than the empty lot. However, under LV rating,
both properties pay the same level of rates. Clearly then, land values produce a poor fit between
funding and benefits.
263
264
So what about CV [capital value] and AV [annual value]? Continuing our simple example, the empty lot
would continue to receive a lower level of benefit than its occupied counterpart, but would also pay a
lower level of rates. Thus, CV and AV rating provide a better match between funding and benefit (at
least in this example). (2007, p. 36)
As Covec notes, capital value and annual value are still not particularly strong matches for benefits received:
For example, a house worth $2m will pay five times as much as a house worth $400k (ignoring any
differentials) but is highly unlikely to receive five times as much benefit. Indeed, benefits are more likely
to accrue according to household size than property value. (2007, p. 36)
Not all benefits should be funded from rates. Chapter 6 recommends that councils make more use of user
charges to promote the efficient use of infrastructure. User charges (and commensurately lower rates)
provide a number of benefits, including promoting the efficient use of infrastructure and a fair allocation of
cost.
Councils may choose to fund a range of other services largely or wholly from rates, such as libraries, parks
and reserves, swimming pools, street lighting, community halls, and flood protection. The reasons for this
are various and include because of their public good nature, because of difficulties identifying beneficiaries
or charging them, or for political reasons. To examine which rating system best matches the benefits
received by ratepayers, who benefits from these services must be understood.
The Commission has outlined in Chapter 2 how these benefits are capitalised into land prices. The
redevelopment and beautification of a local park will increase the value of all nearby properties, including
vacant sections. The value of libraries, swimming pools, halls, reserves, street lighting, and flood protection
activity undertaken by council will be reflected in land prices. As Cheshire, Nathan and Overman (2014) note:
The evidence overwhelmingly shows that the values of all desirable amenities, or locational attributes, of
this type are reflected (capitalised) in house and land prices. This evidence has accumulated from an
ever-increasing number of hedonic studies of housing markets: that is studies which break does the total
price of housing into the prices paid for the particular attributes of the house including the amenities to
which its location gives access. (p. 56)
Indeed, as noted in Chapter 2, the impact of amenities and services on land prices decays as distance
increases. The value of parks decays quite rapidly, but the value of access to a park-and-ride facility might be
sustained over a greater distance.
Access to more or better council services will increase the price that an owner can sell a property for,
whether vacant or built (providing it is zoned for residential use). Because of this, land value rating is a better
fit for benefits received by the ratepayer than capital value.
F9.19
Because the benefits of desirable council services (such as parks) are capitalised into
land value, owners of undeveloped land also benefit from these services. As a result,
land value rating provides a better match for benefits received than capital value rating.
Summing up: how should general rates be set?

Capital value rating acts as a tax on development. Under a land value rating regime, owners of land have an
incentive to develop land to its highest value use, including through the construction of more dwellings.
By contrast, a capital value rating regime lowers the cost of holding vacant land. This is particularly true if
there is a systemic undervaluation of land value, compared to capital value. It is higher income ratepayers
who benefit from capital value rating within a territorial authority again, existing homeowners. These are
good reasons to prefer the use of land value as the basis for general rates.
In the Commissions view, none of the arguments commonly made in favour of rating on the basis of capital
value are strong.
Ability to pay good evidence exists that land value provides a better fit with ability to pay than capital
value, because high-income people tend to live in areas where land prices are high.
Reliability of valuation the evidence that land valuations are less reliable than capital valuations is
inconclusive, but if land is systematically wrongly valued, the distortionary effects of this on the
distribution of the rating burden may be greater under a capital value rating system than a land value
rating system.
Benefits received increased deployment of user charges is the best way of funding a number of council
services. Other services are more difficult to fund this way. The value of those services is capitalised into
land prices. Owners of vacant land and owners of land with dwellings both benefit from the availability of
these services through higher property values.
Commenting on an article in Planning Quarterly that outlined Memon and McFarlanes 2014 study of longterm vacant land in Auckland (discussed in section 9.5), one member of the New Zealand Planning Institute
wrote:
The simple reason why capital value based rates automatically increases urban land vacancy rates is that
it significantly increases speculation in vacant (and low value/slum) land as the PQ article demonstrated.
Unlike land value based rating systems (which most New Zealand cities once used) where owners with
vacant land have to pay the same taxes as those with fully developed land, under a capital value based
system there is no incentive on owners with vacant or low value land to develop and utilize it right away.
Investors can afford to hold onto such land for long periods until they find a significant economic reason
to do so.
The USA has used capital value based rates for a very long time. Anyone who has visited the States
knows that around the periphery of all American cities and towns is a ring of slums and out in residential
areas there is a great deal of vacant subdivided but undeveloped residential land. In large cities centres
there are numerous inexplicable ground level parking lots among the high rise buildings. These are all
classic signs of the land use impacts of a capital value rating system. (Wells, 2014, p. 6)
The effect on land supply of rating on the basis of land value may not be great, but together with other
recommendations it would encourage the development of new dwellings, as well as more intensive
development. For these reasons, the Commission favours the use of land value as a rating basis.
F9.20
A good case appears to exist for setting general rates on the basis of land value rather
than capital value, to encourage the development and efficient use of land. Arguments
used to prefer capital value rating are not strong.
Given the apparent significant benefits from councils rating on the basis of land value rather than capital
value, the Commission is interested in understanding what the costs and barriers would be to requiring all
councils to adopt this valuation base. Providing a common rating system based on land value for general
rates would require amendments to the Local Government (Rating) Act 2002.
Q9.6
What are the costs and barriers for a council in transferring from a rating system based
on capital value to one based on land value?
An idle land tax

A number of submitters recommended that councils should have the ability to levy special rates on vacant
properties an idle land tax:
When a developer seeks a land zone change from rural to residential the entire land area should have to
be developed and marketed in full within three years to stop land banking. This can be achieved easily
by determining the level of rates that would be paid for the potential section yield and levying those
rates in full immediately. (Wilson Penman, sub. 1, p. 2)
Perhaps a premium could be loaded on to vacant sections? It might not be impossible to introduce a
differential that would incentivise early development (this may need to be checked for compliance with
rating principles would be called an idle-land tax in some countries). (Tasman District Council, sub. 25,
p. 6)
265
266
Idle land taxes are common in East Asia and parts of the developing world. The Philippines has a tax on land
which is idle, non-agricultural, and greater than 1000m within cities of up to 5% of the assessed value. Brazil
has a tax on vacant land that increases the longer a site is vacant, although it is not consistently applied
(McKinsey Global Institute, 2014). Bird and Slack (2004) conclude that such taxes are rarely effective.
By further increasing the cost of holding vacant land, such a tax would encourage owners to develop land or
sell to those who will develop it. Legislative change would be required to introduce such a tax, or to provide
local authorities with the power to set one in their district.
If applied generally to idle land, the risk is that such a tax would encourage gaming, or lead to token rather
than substantive use of land. If the tax was applied selectively, the risk is that such powers could be used in
an arbitrary and capricious way. The Commission is interested in submitters views on the potential for an
idle land tax to encourage the development of vacant land.
Q9.7
Is there merit in providing councils with the ability to levy special rates on vacant
properties an idle land tax?
Tax breaks
An alternative to taxing idle land to encourage development would be to provide tax breaks (rates
holidays) for land that is developed.
Since 1971 New York City has provided property tax exemptions to newly constructed multi-unit dwellings
under a programme called 421a. The scheme is complex, offering exemptions for between 10 years and 25
years depending on location and the proportion of units that are considered to be affordable to middleincome or low-income families. The costs of the programme are borne by non-exempt property owners, who
effectively subsidise the construction of eligible dwellings.
The long duration of the exemptions has seen growing concerns about the cost of the programme (in terms
of foregone revenue) (New School for Public Engagement, 2014). In 2006 the lost revenue was reported to
be US$300 million a year, up from US$130 million in 2002. Some 251 000 dwellings have been constructed
and received tax exemptions under the programme (New School for Public Engagement, 2014). In 2003, the
estimated subsidy for an affordable unit built through the programme was US$91 000 (New York City IBO,
2003).
No modelling exists of what construction would have occurred in the absence of the subsidy, but some 60%
65% of residential construction in New York City occurs without receiving tax exemptions (Pratt, n.d.). Most
of the construction that received the exemption was market-rate dwellings; only 7% of dwellings were
considered affordable to low-income or moderate-income families (New York City IBO, 2003). The public
appears to be becoming increasingly dissatisfied, as the scheme is perceived to benefit wealthy developers
without delivering affordable housing.
No good case appears to exist for considering such a scheme in New Zealand, given existing concerns
about councils access to revenue and the likely deadweight costs of subsidising construction that would
occur anyway.
Rates on Crown land

Wellington City Council submitted to the inquiry that:
Central government is a significant landowner in the City but pays no rates. This places a burden on
local ratepayers which should be met by the taxpayer. Being required to pay rates may encourage
central government to more efficiently use these land and housing assets. This is particularly true where
large tracks of land could be more effectively used for housing for example, over 56 hectares of land in
Tawa is for Arohata Prison with most of it in pines and not required for prison purposes. (sub. 21, p. 45)
An LGNZ discussion paper (2015a) on local government funding noted that the Local Government (Rating)
Act 2002 provides for various categories of land to be non-rateable. This includes:
conservation, health and education land, including Crown land that is used broadly for conservation and
recreational purposes and land owned or used by District Health Boards or not-for-profit educational
institutions, from early childhood to schools, to tertiary institutions;
land used for religious worship and religious education, or for charitable purposes;
land used for transport infrastructure (roads, wharves, railways and airports);
land used by a local authority for conservation and recreational purpose; and
Mori land of various types.
As LGNZ notes, councils can levy targeted rates for water, sewerage and refuse collection on non-rateable
land, but cannot levy other types of rates, including uniform annual charges or general rates. State-owned
enterprises and Crown research institutes are fully liable for rates.
LGNZs discussion paper notes that [t]here does not seem to be any coherent, principle-based reason why
local government should be required to contribute to these services through a rating exemption, especially
as local government has no control over the level of contribution it makes, or how that contribution is
spent. In the case of transport exemptions, the paper says that [o]n the face of it, there is no reason why
commercial entities such as airports, ports and railways should not pay rates just as other businesses do
(2015a, p. 58).
This exemption has been in place since 1876 when New Zealands provinces were disestablished and the
funding of local government from rates was established. The Shand Report (2007) says that it is reasonable
to assume that exemption of Crown land reflected the historic perspective that the Crown was not bound by
the law and the old common law concept that the Crown should not pay tax on the land it owns (p. 229).
However, it also notes that in the United Kingdom the Crown is not exempt from local council taxes, and that
in Australia and Canada the federal government provides untied payments to local government (in Canada
this is in recognition of the valuable benefits received from both provincial and municipal levels of
government in Canada).
The Shand Report (2007) points to a 20002001 review of rating powers where officials advised that no
single clear and coherent policy rationale has been identified as underlying all the current exemptions
(p. 232), and that the reasons that could justify such exemptions were not strong (Table 9.2).
Table 9.2
Arguments for and against exempting Crown land from rates

Argument for exception
Argument against exception
Properties are held for a public good purpose (that

is, they are meeting some national good purpose).
Activities on non-rateable land such as hospital or schools

provide local or even wider benefits. However, activities on
fully rateable land can also provide considerable benefits for
communities. Privately-owned businesses can provide
employment that sustain whole communities. A private
hospital will pay rates, while a public hospital next door will
not.
Properties have no or very limited economic use

and therefore may not be able to pay rates.
In general this is appropriately taken account of through the

valuation system, where land with little ability to generate
income will not be valued highly for rating purposes.
Properties do not consume services provided by

local authorities, or consume only limited amounts.
All properties benefit to a greater or lesser degree from the

broader services undertaken by councils such as roading,
planning, and governance. The extent of these benefits will
vary. User charges, and the use of targeted rates also, can also
addressed this.
Source:
Adapted from Shand Report, 2007, pp. 232-236.
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268
The Shand Report points out a number of issues that result from the exemptions:
ratepayers bear the costs of delivering services that primarily, or in some cases exclusively, benefit nonrateable land;
the Crown benefits from services whose costs cannot be recovered through targeted rates (such as
District Plan administration, or parking services);
the non-rateable land reduces the total rating base, with the result that either a reduced level of service
is provided, or the rates bill on other ratepayers is higher than it would otherwise be; and
issues of competitive neutrality arise between public and private providers of health and education
services.
The Commission agrees that the blanket rating exception for properties owned by the core Crown does not
appear to be justifiable.
F9.21
The rating exemption on core Crown land does not appear to have a principled
justification.
Chapter 4 discusses the desirability of using government land for residential development. Rating Crown
land would encourage agencies to use land more efficiently, and release land that is not required. The
Crown should in principle face the same incentives as the private sector to hold or release land for
development.
In Auckland, the core Crown owns 41 100 hectares of land worth $11.9 billion (slightly more than 8% of the
city); in Wellington it owns 1030 hectares of land worth $925 million (around 3.5% of the city). As outlined in
Tables 4.2 to 4.4, in Auckland the core Crown owns 72 hectares of land which is unimproved and considered
suitable for residential development, worth $224 million; and in Wellington it owns 5.2 hectares of
unimproved land suitable for residential development, worth $11.6 million.
Chapter 4 notes that the Government has recently moved to release some Crown-owned land for housing in
Auckland. Had the Crown been required to pay rates on this land, much of it may have been brought to
market earlier by agencies.
In theory, capital charges should provide an incentive for agencies to use their fixed assets efficiently,
including landholdings. However, baseline adjustments are available to capital intensive agencies to cover
changes in capital charges, although these agencies are also supposed to face higher asset management
standards 46. Existing capital asset management expectations do not appear to have encouraged the efficient
management of surplus Crown landholdings. Proposed new expectations will require agencies to plan for
the eventual withdrawal or sale of assets. It will also require their long-term investment plans to reveal assets
that are expected to be surplus to requirements and whether such assets will be subject to formal Crown
disposal processes.
LGNZ (2015a) estimates that the rates revenue forgone by councils from all non-rateable land is about $180
million a year. At the margin, this would make agencies think harder about whether maintaining their
holdings is in the public interest.
F9.22
Removing the rating exemption on land owned by the core Crown would encourage the
government to undertake more active monitoring and management of its land holdings,
and to release un-needed land suitable for residential development.
Departments that are capital intensive agencies are: the Departments of Conservation and Corrections; the Ministries of Education, Foreign Affairs and
Trade, Health, Justice, and Social Development; the Inland Revenue Department, NZ Customs Service, NZ Defence Force, NZ Police. A number of Crown
agencies are also capital intensive agencies: the Accident Compensation Corporation, District Health Boards, Housing NZ Corporation, NZ Transport
Agency, and the Tertiary Education Commission (for tertiary education institutions).
46
The Shand Report recommended removing the rating exemptions on Crown land (with a number of
exceptions such as the conservation estate, the seabed and foreshore and the beds of navigable rivers,
roads, and Parliament and vice-regal residences).
Removing the rating exemption on Crown land would be complex, and come at considerable cost to the
government, but the Commission recommends that the government investigate the issue. The Commission
has not examined the case for removing the rating exemption for other categories of land such as Mori
land or land used for religious purposes.
R9.1
9.7
The Treasury, in consultation with the Department of Internal Affairs, should investigate
removing the rating exemption on land owned by the core Crown, including on land
used for health and education purposes.
Conclusion
One important strand of the academic literature on regulation posits that political processes allow special
interest groups to get regulations introduced that will protect their incumbent position, to the exclusion of
new entrants and to the harm of consumers at large (eg, Stigler, 1971; Posner, 1974). Regulations may claim
to protect the public; instead they protect concentrated, incumbent special interests.
Many features of land supply regulation exhibit these features. They may be described as promoting
amenity, character, productive agricultural land, the environment, or public health. But many decisions of
local government, including the land use regulations discussed in this report, effectively protect the interests
and wealth of those who already own housing, at the cost of those who do not.
The Commissions 2012 Housing affordability report suggested that the number of intermediate renters in
New Zealand was indicative of missing rungs on the housing ladder. Equally it could now be argued that
entirely through rational self-interest, existing homeowners through local politicians and planners have
effectively pulled the housing ladder up behind them.
There are a range of small policy measures that would encourage the release of more land for housing.
However, addressing the scale of the problems identified, particularly in Auckland, is likely to require a more
coordinated response, as discussed in the next chapter.
269
270
10 Planning and funding our future

Key points
The shortfall of dwellings in Auckland is in excess of 30 000, and continuing to grow each year.
Large-scale developments in both greenfield and brownfield areas are needed to overcome the
magnitude of the challenge.
Housing Accords and Special Housing Areas seek to address one of the significant challenges
identified in this report: slow and overly restrictive planning processes. However, they do not
address other significant barriers to large-scale developments, including land assembly and
infrastructure financing.
The largest developments in Auckland Hobsonville, Three Kings and Stonefields have been able
to repurpose large brownfield sites. But there are few such sites left. Most greenfield landholdings
are small and will not support development on the scale that is required to address current
shortfalls.
Coordination failures in land assembly are inhibiting large-scale developments in greenfield or

brownfield sites. Given the significant social and economic harms caused by the current housing
situation, a good case exists for compulsory acquisition powers to assist in the assembly of sites for
large, masterplanned developments.
In many other countries urban development authorities play an important role in urban
regeneration and residential growth strategies. They can partner with private sector developers to
remove regulatory risk and bring shovel-ready land and dwellings to market. They can also
support the development of a residential construction sector that is able to operate on a scale that
can generate efficiencies.
Where councils rezone rural land for urban or residential use, large increases in value can accrue to
landowners. The community should have some expectation of capturing at least some of that gain.
An urban development authority would play a valuable role at the intersection of these challenges,
assembling land, capturing increases in land value that result from rezoning for recycling into
growth-enabling infrastructure, and coordinating development on the scale required to address
current land supply and housing shortages. The Commission is interested in views on the
appropriate design of an urban development authority.
10.1 Introduction
Given current regulations, the market or existing government initiatives show little evidence that they will
deliver the number of dwellings required to meet New Zealands, and particularly Aucklands, growing
population (see Figures 2.9 and 2.10). The scale of shortage in some settings, and especially Auckland, and
the complexities in land use regulation, indicate a need for bigger steps.
The Commission considers that a range of actions would improve the supply of land for housing (Table 10.1).
Chapter 10 | Planning and funding our future
Table 10.1
Selected recommendations from previous chapters
Chapter
Chapter 3: Integrated
Planning
Chapter 4: Processes for

supply and release of land
Chapter 5: Regulations and

approval processes
Chapter 6: Planning and

delivering infrastructure
Chapter 7: Paying for

infrastructure
Recommendation
Local authorities targets for infill and intensification should take better account of
commercial viability
Cities should have the ability to develop spatial plans that integrate transport and
other infrastructure planning with land use regulation
Local authorities should express land-supply targets in terms of zoned and

serviced land, and report publicly on their performance
Local authorities should monitor dwelling completions and net changes in the
dwelling stock
The Ministry of Business, Innovation and Employment (MBIE), Statistics

New Zealand and councils should work together to improve the quality of official
statistics available
MBIE should inventory public land holdings in high-growth cities to identify sites
that could be used for housing
MBIE and the Ministry for the Environment should, in due course, review
Independent Hearings Panels to assess whether they should be a permanent
feature of the planning system
Councils should remove balcony/private open space requirements for apartments
Councils should review minimum apartment size rules, with a view to removing
them
Councils should remove minimum parking requirements
Councils should undertake robust cost-benefit analysis before introducing building

height limits, and should remove current limits where benefits do not outweigh
costs
Councils should remove controls on the design and construction of dwellings in

District Plans that exceed Building Act standards
Government should clarify the importance of housing and urban environments in

amendments to the Resource Management Act (RMA)
Councils should move more residential land uses into permitted or restricted
discretionary status

information systems, upskill staff to use them effectively, and integrate information
from the systems into decision-making processes
Councils should make greater use of user charges where this can reduce demands
on infrastructure
The Land Transport Management Act should allow pricing on existing roads where
this enables effective network optimisation
Developments with consent should be exempted from changes to infrastructure

standards, or compensated for costs incurred
Evaluation of the financial prudence and reporting regulations should monitor how
they affect councils ability to provide growth-enabling infrastructure
If smaller dwellings impose lower costs on the infrastructure network, this should
be reflected in lower development contributions
Developers should be able to request, and Councils should be obliged to

consider, the use of targeted rates to fund infrastructure in new developments
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272
Chapter
Chapter 8: Governance of
water and transport
infrastructure
Chapter 9: Shaping local

incentives
Recommendation
Auckland Transports and Watercares Statements of Intent should include

performance measures relating to the efficient roll-out of infrastructure to new
dwellings
Watercares infrastructure growth charge should reflect marginal costs, rather than
being a flat charge
The Treasury, in consultation with the Department of Internal Affairs (DIA), should
investigate with a view to removing the rating exemption on Crown land
Even so, significant challenges remain.
The magnitude of the shortfall in dwellings in Auckland is not being eroded; rather, it is continuing to
grow.
The local political economy suggests that improvements to land use regulation, and a sufficient
commitment to infrastructure funding, will be difficult to realise.
Enabling development to occur at scale is a significant problem.
The development at Hobsonville will realise around 3 000 new dwellings, and will take more than a decade
to plan and complete. But Auckland has an existing shortfall of as many as 32 000 dwellings (see Figure 1.5),
and requires a further 13 000 dwellings a year to accommodate new growth. This is the equivalent of eleven
more Hobsonvilles immediately, and a further four completed every year. The market alone will not address
these challenges; a greater degree of public leadership and equity participation in development is likely to
be required.
What Housing Accords and Special Housing Areas do and do not address
The Housing Accords and Special Housing Areas Act 2013 (HASHA Act) addresses some of the wider
concerns with the release of land for housing that are discussed in this report. In particular, it streamlines
planning processes to allow for the faster processing of consents. It also (in some circumstances) provides
more permissive planning rules than would otherwise be available.
However, some problems identified in this report are not relieved by the HASHA Act, in particular the three
issues below.
The assembly of sites, to allow developments to occur at scale. Of the Special Housing Areas (SHAs)
announced in Auckland, only one has the capacity to deliver in excess of 3 000 dwellings (over 10 years),
which is the size of the Hobsonville project. Some provide for only 9 or 10 dwellings. In some cases, both
inside and out Auckland, designated SHAs may only be the size of one urban lot.
The inability to attract developers able to deliver on a scale required to ameliorate the housing shortage
in Auckland, and capture the potential economies of scale in home construction.
An unwillingness to fund infrastructure, such that its provision is sufficiently responsive to demand. This is
a source of frustration for developers, even those within SHAs (Ireland & Smith, 2014).
Considering options to make larger, more rapid progress on these three issues is the subject of this chapter
(Figure 10.1).
Figure 10.1
Barriers to resolving land supply problems

supply problems
Planning rules
and processes
Coordination to
enable scale
Infrastructure
funding
10.2 Amalgamation of land

In its 2012 report on Housing affordability, the Commission noted the desirability of bringing significant
tracts of both greenfield and brownfield land to the market in Auckland and Christchurch (p. 102).
Significant scale economies can be achieved in land development and building, but this often requires the
aggregation of smaller parcels of land. MBIE has also identified fragmented land ownership as a constraint
on residential housing supply, limiting the opportunity for large-scale development opportunities (MBIE,
2014d). The Urban Taskforce report (2009) identified difficulty in aggregating significant areas of
residentially zoned land as a barrier to high-quality, larger-scale urban developments (p. 17).
Benefits of large-scale developments

The residential construction sector is essentially a fragmented cottage industry dominated by very small
independent builders constructing bespoke homes. This makes efficiencies in the use of land, or
construction itself, difficult to realise. The Commissions 2012 inquiry into Housing affordability found that
the lack of scale in the New Zealand residential construction industry presents a significant barrier to
productivity growth.
Small builders are less able to generate economies of scale.
Scale home builders can reduce construction costs by delivering standardised housing, but scale
building firms occupy a comparatively small share of New Zealands building market.
A lack of available land can present a significant barrier to productivity by inhibiting the development of
group home builders and scale developments. (Box 10.1)
Box 10.1
The Commissions 2012 views on development at scale
First, development at scale (and consequently low cost) is necessary to substantively influence the
market as a whole. Second, it would enable more builders and suppliers to gear up to build highor medium-density housing rather than the low-density housing that currently prevails. Third, the
availability of larger parcels of land for development enables builders to reap economies of scale.
(p. 110)
Larger building firms are also able to generate scale efficiencies from building large numbers of
houses on the same site. This creates efficiencies from repeating building processes, and also
allows the different parts of the supply chain to work sequentially on different projects, resulting in
fewer time delays. In order to achieve this, builders require sufficient developed land to be
available to leverage their model across multiple build sites (Fletcher Building, sub. 21, p. 3).
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274
Inquiry participants noted that it is rare for land areas of this size to be available (Saltburn Limited,
sub. 7; Fletcher Building, sub. 21). (p. 184)
The Commission considers that the single biggest factor which has constrained the emergence of
larger and more efficient building firms is a shortage of large land parcels which enable residential
development at scale. Inquiry participants suggested that the dominance of small firms building
bespoke houses is a natural by-product of the typically small and expensive land areas which are
available in most of New Zealands faster-growing regions
In essence, the structure of the industry is a reflection of the environment in which it operates. Until
conditions emerge which favour larger developments with a reasonable level of certainty around
future demand, it is unlikely that we will see a significant shift in the nature of the industry. (p. 185)
Source:
NZPC, 2012.
The Hobsonville Land Company was able to attract successful tenders from AV Jennings to be its building
partner. AV Jennings is one of Australias leading development companies, and had not previously operated
in New Zealand. Growing the size of New Zealand construction firms, or attracting large firms to operate in
New Zealand, is likely to require large-scale developments on large sites.
F10.1
Large-scale developments offer a number of benefits, including the ability to generate

economies of scale that can drive down infrastructure and construction costs. Larger
developments are also important to attract overseas developers who may be better
able to innovate and operate at scale.
Overseas investment framework

In the course of the inquiry, the Commission spoke to two developers (including one of New Zealands
largest firms) that are New Zealand-registered companies with majority-foreign shareholding. These
developers reported that the overseas investment framework caused unnecessary costs and delay in
acquiring land for development.
Foreign-owned companies require the consent of the Overseas Investment Office (OIO) to purchase
sensitive land. The definition of sensitive land is very complex, and professional assistance may be
required to assess whether or not the land being acquired meets the definition.
These companies told the Commission that they have no problem gaining the consent of the OIO, on the
basis that the projects are of benefit to New Zealand. But the process causes additional costs and delays.
Where they are competing to buy land against other companies, their offers must be made subject to OIO
approval, putting them at a competitive disadvantage.
Where land is purchased by a developer for the purpose of being redeveloped into housing and resold in a
reasonable time period, no good reason seems to exist to screen foreign investment. This process is also
likely to deter other foreign developers, who may be able to innovate, or in time operate, on a larger scale
than New Zealand firms, from entering the New Zealand market. The Treasury should investigate whether an
exemption is justified in these situations.
R10.1
The Treasury should investigate the possibility of providing an exemption from the
foreign investment screening regime for developers purchasing land, providing the land
is developed into housing and resold within an acceptable timeframe.
Is amalgamating land in New Zealand a problem?

In a 2006 paper for the Ministry for the Environment, Neil Gray argued that the land problem in
New Zealand was different to other countries:
In the UK and US and Australia, urban regeneration is often proposed as a means of revitalising large
tracts of derelict land (redundant docklands, factories etc). By contrast, New Zealand (particularly
Auckland) has few such areas. Nor does New Zealand have large tracts of contiguous Crown land within
its urban borders, or tracts of leasehold land. The problem in the New Zealand context is how to
amalgamate small parcels of valuable urban land, into larger blocks that permit meaningful
development. (p. 5)
Auckland is not entirely without such large contiguous sites, but they are rare. Many of the largest
developments that are underway or currently being completed have involved repurposing brownfield sites,
such as Hobsonville, Stonefields, and Three Kings. However, it is notable in each case that little or no
amalgamation was integral to the project, with sites owned by either the Crown or Winstone.
Chapter 9 discussed the issue of land banking in New Zealand cities. Figure 9.8 shows the wide distribution
of landholdings that are considered suitable for subdivision. The idea that developable greenfield land in
Auckland is held in a small number of concentrated holdings is misplaced. In fact, developable land is held
by large number of owners, due in part to the proliferation of lifestyle blocks (see Chapter 3).
Submitter views on amalgamation problems

Many submitters considered land amalgamation to be a problem, in both greenfield and brownfield sites:
Land fragmentation and owners individual agendas have the potential to make infrastructure provision
for large scale greenfields development messy, challenging and costly. Land aggregation would help.
(Ralph Broad, sub. 3, p. 3)
A public agency with the ability to aggregate land would be beneficial. Such an agency would need
access to considerable sums of money to acquire and hold land, before onselling to an interested
developer. The ability of an agency to acquire large amounts of surplus land from government agencies
such as Housing New Zealand, KiwiRail and the Ministry for Education would greatly assist in putting
larger land parcels to its best use, rather than being fragmented into smaller land parcels and
developed in an ad-hoc manner. (Allison Tindale, sub. 8, p. 26)
A particularly strong emphasis on brownfield land with many landowners creates problems of land
assembly. There is also the problem that those land owners new to the development process have
raised expectations of the value of their land. The coordination and cost allocation for the provision of
infrastructure also increase significantly with multiple owners. (Selwyn District Council, sub. 45, p. 11)
Land fragmentation can be a barrier to cost effective, quality development in urban areas (not just
brownfield) and the Agency [New Zealand Transport Agency] would support initiatives that help
facilitate urban intensification in these areas. One example could be establishing an appropriate public
body or entity that can aggregate multiple parcels of land to undertake desirable urban redevelopment.
(NZTA, sub. 73, p. 12)
The Greater Christchurch Urban Development Strategy Partnership (comprising Christchurch City Council,
Environment Canterbury, Selwyn and Waimakariri District Councils, the New Zealand Transport Agency and
Te Rnanga o Ngi Tahu) submitted that a public agency was needed to amalgamate land:
Holding land in the hope of advantages derived through site amalgamation can be high risk and
financially unviable, especially with the current sanctity provided to private property rights. Better
enabling the aggregation of land and a wider ability to compulsory purchase land therefore need to go
together to short circuit current practices.
Development in many existing urban areas that are appropriate for intensification is inhibited due to the
existing land ownership pattern, often with titles in long sections with a narrow street frontage.
Aggregating adjacent land is not easy for a developer and the resulting redevelopment on such a single
lot-by-lot basis often struggles to achieve good urban design outcomes.
Equally, the preferred development of larger sites can be frustrated by owners of surrounding land
(perhaps necessary for integrating with existing networks or communities) holding out in the
knowledge that they are effectively untouchable.
The role of a land acquisition and aggregation agency could be to:
step in as a last resort to compulsory acquire strategic sites where other avenues had been
exhausted
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276
proactively purchase and hold land in strategic areas where the market is unwilling
handle land amalgamation administrative processes (combining titles, etc)
undertake initial masterplan consenting or physical works to make the site development ready
promote and showcase successful redevelopment to change attitudes of landowners or

developers. (Greater Christchurch Urban Development Strategy Partnership, sub. 18, pp. 89)
The Institute of Surveyors also submitted that a public agency was needed to amalgamate land:
Aggregation of land is a very important planning mechanism. The results of large land parcels being
developed into a range of housing forms and styles with integrated planning and design over the last
decade has made substantial improvements to the quality of urban environments particularly in
Auckland and Christchurch and is a recommended practice.
It is common to have a very fractured landownership pattern in green fields development areas. This
makes it virtually impossible to implement catchment based planning for infrastructure requirements as
individual owners do not want to contribute if they perceive their returns are lower than another
property owner. There are issues with connections through properties where owners are extorting
ridiculous connection fees adding unnecessarily to development costs
We suggest that aggregation of land for housing by a public agency should be seriously investigated.
From a design point of view aggregation of many smaller parcels into large development blocks offers
very substantial benefits to communities through the improvement in design options.
Aggregation can also accelerate development in city in areas where growth is non existent or areas
need refreshment and improving to promote growth across a city area. If managed by a combination of
both private and public sector contributions such as Waitakere properties in the 1990s then results can
be very successful. Such an agency needs to be a separate entity from Council and able to operate
independently from Councils normal structure.
It would be advantageous if such agencies could have the use of special development area processes
that could accelerate the planning and consenting processes such as precinct planning area or local
area plan or some such description that could be applied to a specifically identified development are
supported by legislation (RMA or Local Government Act) and the District Plan. (New Zealand Institute of
Surveyors, sub. 74, pp. 1516)
However, one submission from landowners at Papamoa East, Tauranga, did not agree that an agency was
required to undertake amalgamation:
We believe that enabling public agencies to aggregate land would end up being a very contentious and
litigious process that would struggle to achieve any effective land aggregation outcome. We would
prefer to see structural changes to encourage and facilitate the aggregation of land [privately]. (Te Tumu
Landowners Group, sub. 40, p. 20)
Private land assembly mechanisms are discussed further below. Another submitter, while agreeing that
multiple and fragmented land ownership inhibited development, opposed measures that might facilitate the
amalgamation of land. Instead Hughes Development Ltd submitted that councils should prioritise zoning
land for residential development where land ownership is concentrated, rather than held in multiple
ownership (sub. 43).
F10.2
There is a coordination failure preventing many large residential developments.

Amalgamating land is a challenge in both greenfield and brownfield sites, particularly in
Auckland.
Property rights
Private property rights serve essential economic purposes. The presence of property rights and their
protection and enforcement by the state creates incentives for work, risk-taking, investment and trade,
because it prevents the more powerful seizing the fruits of these activities. It means individuals can redirect
resources away from protecting their property by force, towards more productive activities. In this way,
private property rights serve to advance peace, science, and the wellbeing of individuals and the community.
They are an essential component of freedom, recognised throughout modern history from the Magna Carta
to the Universal Declaration of Human Rights.
But property rights are not absolute. In the case of Entick v Carrington (1765) (which established that the
Executive can only act within the law), Lord Camden wrote:
The great end, for which men entered into society, was to secure their property. That right is preserved
sacred and incommunicable in all instances, where it has not been taken away or abridged by some
public law for the good of the whole. The cases where this right of property is set aside by private law,
are various. Distresses, executions, forfeitures, taxes etc are all of this description; wherein every man by
common consent gives up that right, for the sake of justice and the general good. By the laws of
England, every invasion of private property, be it ever so minute, is a trespass. No man can set his foot
upon my ground without my licence, but he is liable to an action, though the damage be nothing; which
is proved by every declaration in trespass, where the defendant is called upon to answer for bruising the
grass and even treading upon the soil. If he admits the fact, he is bound to show by way of justification,
that some positive law has empowered or excused him. The justification is submitted to the judges, who
are to look into the books; and if such a justification can be maintained by the text of the statute law, or
by the principles of common law. If no excuse can be found or produced, the silence of the books is an
authority against the defendant, and the plaintiff must have judgment. (at 1066)
Private property rights should only be restricted in accordance with a law; and they can be restricted where it
is in the public interest.
Economics of land assembly

Miceli and Segerson (2007) note that from an economic perspective, the compulsory acquisition of property
for public purposes is not substantively different from regulating property use to control externalities:
In both cases, the government imposes a cost on the landowner in order to provide a social benefit,
where the action is justified on efficiency grounds only if the gain (whether in the form of benefit
conferred or a harm prevented) exceeds the cost. (p. 3)
Miceli (2011) outlines that holdouts impose a supply-side externality, with the direct implication that
government can correct the allocative inefficiency through compulsory acquisition (known as eminent
domain in the United States). The inefficiency of holdouts where projects require the assembly of
contiguous parcels of land held in diverse ownership has been explained in various ways.
Once the nature of the project is known, landowners gain significant monopoly powers to seek prices
significantly in excess of the fair value of the land. In addition, holdouts increase transaction costs
(Munch, 1976; Posner, 2003).
Given that multiple sellers have to agree before a project can proceed, individual owners have an
opportunity to engage in rent-seeking (Goldberg, 1985).
It can be characterised as an anti-commons problem, in which multiple owners hold effective rights of
exclusion over a scarce resource (Heller, 1998).
Menezes and Pitchford (2004) examine holdouts from the perspective of a non-cooperative bargaining
game; they assume all mutually beneficial transactions are eventually completed, and the inefficiency
arrives due to a cost of delay. Cai (2003, 2000) shows that infinite delay is a possible outcome of an
assembly game, and that the threat of delay increases with the number of sellers.
Miceli and Segerson later (2012) reframe the holdout problem as emerging through ordinary sequential
bargaining. In their model, prices rise as the purchaser negotiates with each landowner; the final seller
receives that highest price; and by the end the price paid to all sellers may exceed the value of the
project to the buyer.
Most states provide power for the government to acquire property for public purposes, with compensation.
However, some authors have pointed out that, purely as a solution to the problem of holdouts, such powers
would be justifiable for private purposes too.
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278
Compulsory acquisition of property for public use

Compulsory acquisition of property by the state is usually held to be justified if it is in the public interest, and
if there is just compensation for the property taken.
Merill (1986) distinguishes between the ends approach to justifying compulsory acquisition, which
describes whether or not the land is for public use, and the means approach which deals with whether the
land being acquired involves an assembly problem. Miceli and Segerson provide the following taxonomy
(Table 10.2).
Table 10.2
Ends and means approaches to land acquisition

Private purpose
Public purpose
No
assembly:
project does
not require
the assembly
of land
For example, the sale of a single parcel of land

from one party to another.
For example, acquiring a single parcel of land to

build a police station.
Neither means nor end approaches justify

compulsory acquisition, even if one of the parties
is the government.
While the ends approach would justify

compulsory acquisition, the means approach
does not because there is no assembly.
Assembly:
project does
require the
assembly of
land
Large real estate developments involving several

parcels of land.
For example, acquiring several parcels of land for

a motorway.
The means approach justifies compulsory

acquisition because of assembly holdout
problems, but the ends do not because it is
for a private purpose.
Both the ends and the means approaches

justify compulsory acquisition.
Source:
Miceli & Segerson, 2007.
Miceli and Segerson say that in the no assembly/public purpose case, it is appropriate for government to
use taxes to acquire the land in a consensual transaction, rather than compulsorily acquiring the land. It is
notable that in New Zealand the Public Works Act 1981 appears to provide for compulsory acquisition in this
situation (ie, it does not reserve compulsory acquisition to situations involving an assembly problem). 47
The authors note where American courts have allowed assembly/private purpose cases of compulsory
acquisition (as in the case of Kelo v New London), the courts have tended to emphasise public benefits (such
as jobs and tax revenue) even when the justification is really overcoming assembly holdouts. But they also
note (citing Cooter, 1985) that contract law and the law of nuisance can result in outcomes that are
indistinguishable from this in economic terms, where a party can unilaterally walk away from a contract by
paying damages, or where a party creating a nuisance can pay damages rather than ceasing the harm.
Compensation for compulsory acquisition

A traditional approach to compensation for compulsory acquisition is the payment of fair market value for
the property. But owners whose subjective value is higher than the market would not consent to sell at that
price. A fair solution would be to compensate at the owners subjective value, but this is not observable, in
particular because of the opportunities provided by the assembly holdout problem. Assessed market value is
seen as a practical compromise.
Epstein (1985) says that the use of market value is justifiable where the benefits of the project will be widely
distributed, saying the compensation requirement of the eminent domain clause is as much concerned with
the distribution of gains and losses between persons as with their aggregate amount (p. 115). Therefore
much depends on whether the compulsory acquisition creates sufficient public benefits.
Economic literature on how compensation is paid has also focused on avoiding moral hazard that might
cause landowners to overinvest in land that may subsequently be taken for public use. Blume, Rubinfeld and
47
Other academics have argued that the use of this power will be self-limiting due to the high costs of by-passing the market (Fischel 1995; Merrill, 1986).
Shapiro (1984) argue that the only efficient outcome to this problem is to pay no compensation. But
objections to doing this include:
compensation discourages the government from acquiring too much land for public use (Johnson, 1977);
not paying compensation can encourage development earlier than is efficient, so as to discourage
government taking the land (because government will face higher costs using land that is already
developed);
because private insurance against compulsory acquisition is not available, compensation is justified
(Blume & Rubinfeld, 1984);
compensation avoids demoralisation costs discouraging owners from investing in their land where it is
efficient to do so (Michelman, 1967).
Implications for urban development

Miceli and Sirmans (2007) discuss the holdout problem in the context of urban development. In a standard
mono-centric city model (discussed in Chapter 2), lot sizes decrease towards the city centre (in part because
land prices are higher and so cause developers to substitute capital for land, leading to denser
development). Ownership of a given area of land therefore is more dispersed in the centre of the city than at
the fringe, where average lot sizes are larger. A consequence of this is that the costs of the assembly holdout
problem are greater in the centre:
The implication is that, compared to the situation without assembly, the optimal location choices of
developers will be systematically biased outward, toward the urban fringe, where ownership is more
consolidated and assembly costs are therefore minimized. (p. 316)
Other land assembly mechanisms

Compulsory acquisition is not the only approach to overcome holdout problems. The use of dummy
buyers is the only fully private mechanism to assemble land while overcoming holdout problems. Where
developers can maintain secrecy about their identity through agents, they may be able to assemble land
without alerting vendors that they can hold out (Grossman & Hart, 1980; Cohen, 1991). Yet secrecy is difficult
to maintain; at which point assembly projects are subject to collapse (Box 10.2). It is particularly impractical
for public organisations to maintain secrecy about projects.
Box 10.2
Disneys Dummies
Following the success of Disneyland in California, Walt Disney began plans to establish two new theme
parks: Disney World in Florida, and Disneys America in Virginia. To assemble the significant tracts of
land required, Disney engaged in elaborate attempts to disguise the assembly:
One of the primary impediments to secret assemblies of land is that the advantage of secrecy lasts
only so long as the principals identity, in fact, remains secret. If the secret is discovered, the land
assembly process transforms into a mirror image of the bifurcated process of land assembly. To
assemble the land required for Disneys America in Virginia, for example, Disney established a
network of dummy corporations and engaged buyers (lawyers) in different states to handle the
transactions. Disney also created a paper intermediary through which all monetary transactions
were funneled and took steps to prevent buyers from discovering one anothers identities, even
if they worked at the same firm. If those measures were not enough, Disney channeled all mail
concerning the transactions through one office that meticulously switched envelopes, and
telephone calls were made using a special 800 number that could not be traced. Despite these
efforts, The Washington Post went public with Disneys identity, which had the effect of
transforming remaining property owners into holdouts. At that point, Disneys choices were
identical to those facing land assemblers using the bifurcated process: continue negotiations,
forego acquisition of holdout properties or the project in its entirety, or ask local government to
use eminent domain. Disney ultimately shelved its plans for Disneys America amid concerns
about the parks proximity to the Civil War battlefield at Manassas, the environmental impact of
the park, and the nature of exhibits to be displayed at the park.
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280
Beyond the internal transaction costs associated with maintaining secrecy until assembly is
complete, the strategy works best in contexts where external transaction costs are low. During a
flight over central Florida in 1963, for example, Walt Disney identified a wasteland southwest of
Orlando where alligators outnumbered people for development. By 1965, Disney had purchased
more than 25,000 acres of land under a strict cloak of secrecy from owners who were glad to
sell dirt cheap because the property could not be used for agricultural purposes. A major part of
Disneys successful assembly derived from the combination of a small number of property owners
with the limited utility of the desired properties. Because the sludgy terrain was useless for
agriculture and far from Floridas beaches, the objective fair market value of the properties was
not nearly as high as in other parts of the state. Furthermore, the subjective value of many of the
properties was also low because their owners obtained title to the properties by inheritance and
had never seen the properties. Thus, the transaction costs associated with Disneys secret
purchases were low, which facilitated the sales.
Source:
Lopez, 2011, pp. 801802.
Most other land assembly mechanisms that seek to overcome holdout problems require government
involvement. A large number of such mechanisms, proposed in the literature, seek to ensure that efficient
developments proceed (where the value of the assembled properties exceeds the sum of the individual
property values), and that landowners receive fair compensation given their individual subject valuations of
their land.
In Land Assembly Districts, landowners in a district designated for acquisition would establish a collective
to negotiate on their behalf. Landowners receive a share of votes proportional to the assessed value of
their property, and can agree to a sale by a qualified majority (Heller & Hills, 2008). This mechanism does
not ensure that each owner receives their true subjective value, or that only efficient developments
proceed.
Shapiro and Pincus (2009) propose an auction mechanism. All owners in an area for acquisition nominate
a sale price for all the properties; the highest nominated price becomes the reserve in an auction among
developers for rights to the properties. Where there is a successful bid, each owner receives a share of
the price according to the assessed value of their property. This provides an incentive for each
landowner to reveal their true subjective valuation of the property. But it can prevent efficient
developments from going ahead, because the highest total price nominated (the reserve) can easily be
higher than the sum of the individual valuations (Miceli, 2011).
Lehavi and Licht (2007) accept a need for compulsory acquisition, but separate that decision from the
problem of compensation by establishing a company in which all landowners have shares, proportional
to an assessed value of their respective properties. Each owner can sell their shares to the government at
the assessed price; if they do not, the company will sell them to developers (by negotiation or auction).
This mechanism does not ensure that only efficient developments proceed, or that each landowner
receives their subjective valuation in compensation.
Bell and Parchomovski (2007) suggest a self-assessment model in which the propertys value is assessed,
and the owner nominates a desired price. If the landowner will not sell at the assessed value, they are
taxed on the difference between the nominated and assessed value, and are forbidden for life from
selling at less than the nominated price. However, according to Plassmann and Tideman (2011), it seems
impossible to calibrate the tax perfectly so as not to provide incentives to over-nominate or undernominate a desired value; and the prohibition on sale does not account for where an owners subjective
valuation changes in the future.
Under the Clarke mechanism, the government announces a compensation value to all landowners,
and asks each landowner to specify a price they would pay to have the development proceed or be
cancelled, given the compensation on offer. Some owners may be willing to pay to receive the
compensation; others willing to pay to retain their property. Where the net willingness to pay for the
development to proceed is positive, the assembly occurs and each owner receives the initial proposed
compensation value; where it is negative, assembly does not occur. To induce owners to accurately
assess their willingness to pay, any pivotal owners (those whose individual assessment causes the net
willingness to pay for the development to proceed to shift between positive and negative) pay a Clarke
tax proportional to how pivotal their willingness to pay was to the development proceeding or not. This
provides for efficient developments to proceed, but does not ensure each owner receives their
subjective value (Plassmann & Tideman, 2011).
Miceli, Segerson and Sirmans (2008) have proposed a mechanism that ensures only efficient
development occurs, and that each own receives full compensation. But it requires that owners have
identical subjective valuations of their property, and so for practical purposes can be dismissed.
Plassmann and Tideman (2011) propose a mechanism in which the government requires every landowner
to state a selling price for their property. Owners pay a tax on the nominated value (discouraging
overstating the value) and are required to sell to a developer at the stated price (discouraging
understating the value). The authors discuss various mechanisms to compensate all landowners so that
the tax is returned to owners (collectively) in a way that does not distort their nominated value. However,
owners, in nominating a correct value, must believe that their marginal valuation tax equals the
probability that a developer will assemble the properties at the nominated prices. In essence, they need
to believe that the government has set the tax by accurately assessing the likelihood of developers
assembling.
Few mechanisms ensure only efficient developments proceed (where the value of the assembled land is
greater than the sum of owners subjective valuations) and that owners are compensated for their subjective
valuations. The few such mechanisms that may exist rely on unreasonable assumptions (eg, that government
can correctly predict the likelihood of developers purchasing land at given prices).
Risks of compulsory acquisition

Using compulsory acquisition has potential problems.
Compulsory acquisition will not discriminate between owners whose reason for holding out is sincere
rather than strategic. In this case, the property is forcibly transferred from a user who values it higher to a
use who values it lower, decreasing allocative efficiency (Lpez & Clark, 2013).
Compulsory acquisition may be more easily applied in poorer areas, because values and compensation
will be lower; and also because those communities are less able to resist the acquisition through political
channels. (Lpez & Clark, 2013). Where compulsory acquisition is used to regenerate blighted areas of a
city, it may lead to a more efficient use of land from a city-wide perspective, at the potential cost of
equity (from displaced people).
Developers may have an incentive to rent-seek, lobbying for the use of compulsory acquisition powers
against owners who are not true holdouts (Lpez & Clark, 2013).
If property is systematically undervalued (Chapter 9 provided some evidence that bare land may be
systematically undervalued compared to improved land), compulsory acquisition can lead to overassembly (Miceli, 2011).
In principle, these risks apply to the compulsory acquisition of land for infrastructure under the Public Works
Act 1981. However, compulsory acquisition powers risk being increasingly overused if they are exercised by
an agency with commercial development functions. In the United Kingdom, and in Victoria, Australia, the use
of compulsory acquisition powers requires the approval of the relevant minister.
In New Zealand, the exercise of compulsory acquisition powers is subject to judicial review. The courts have
said that a public body invested with statutory powers of compulsory acquisition must take care not to
exceed or abuse its powers; it must act in good faith; and it must act reasonably (Mayor of Westminster v
London and North Western Railway Co (1905)). In Seaton v Minister for Land Information (2012), the courts
held that the Minister had exercised his powers of compulsory acquisition under the Public Works Act for an
improper purpose (to retain benefits for private third parties).
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Compulsory acquisition powers can be effective without being exercised

In many cases the exercise of compulsory acquisition powers may be unnecessary where the existence of
such powers is sufficient to encourage a negotiated acquisition. Section 18 of the Public Works Act 1981
requires the minister or authority acquiring the land to make every endeavour to negotiate in good faith
with the owner in an attempt to reach an agreement for the acquisition of the land.
Negotiated acquisition has a number of benefits compared to compulsory acquisition:
it can be faster, as it avoids the waiting period before the land can be compulsorily acquired, and the
time taken by any legal challenges;
it can be cheaper, not necessarily in terms of payment for the land but in terms of avoiding any costs
associated with hearings at the Environment Court or the Land Valuation Tribunal;
it may be perceived as less heavy-handed, particularly as the owner must consent to the sale; and
it can more easily accommodate other preferences of the owner, such as settlement date.
In a 1997 study by Almond and Plimmer, the authors surveyed British organisations that have powers of
compulsory acquisition. Of the respondents, 80% had acquired land by agreement rather than through the
use of compulsory acquisition powers, and 97% said that acquiring by agreement was preferable to
compulsory purchase. The authors conclude:
The research has demonstrated that providing a body is not making an unlawful acquisition, then it is
certainly more appropriate to acquire by agreement, given that the vendor is likely to receive
compensation on the same basis as under a compulsory acquisition, with the acquisition being less
bureaucratic, faster, and allowing for flexible negotiations At the same time, a balance needs to be
maintained, because in certain circumstances, such as highways or slum clearance schemes, a CPO
[compulsory purchase order] will be necessary in order to acquire all the interests within a given
timescale. (p. 5)
This was also the experience of Australian and British public agencies with powers of compulsory acquisition
that the Commission spoke to. They emphasised the value of powers in bringing people to the table, but
said in a vast majority of cases the sale was consensual.
Alternative compensation approaches may assist in encouraging sale by agreement; for example, the option
of a share in the development venture rather than cash (Lehavi & Licht, 2007). However, the threat of
acquisition is still coercive, and there needs to be a willingness to exercise the compulsory acquisition
powers.
F10.3
Compulsory acquisition powers can facilitate a negotiated sale, and often do not need
to be exercised to be effective.
Compulsory acquisition for development in other countries

Local authorities in the United Kingdom have power, under the Town and Country Planning Act 1990, to take
land for redevelopment, with the assent of the Secretary of State and various Urban Development
Corporations established under the UKs Local Government, Planning and Land Act 1980 have the same
powers. The State of Victorias government development corporation, Places Victoria, has the power to take
land within designated redevelopment areas, with the approval of the Minister of Planning, and has done so
although not in recent years.
A recent report by the McKinsey Global Institute (2014) asserts that unlocking land supply at the right
location is the most critical step in providing affordable housing (p. 7). Its investigation across different
countries points to the common problem of complex ownership structures and fragmentation of land parcels
holding back development, even where land is vacant and underused or properties are dilapidated. The
report argues that this may mean that governments have to acquire or expropriate such land using
compulsory acquisition powers or to facilitate the pooling of land by existing owners in a participative way.
The report identifies approaches used overseas to spur development through land assembly (Box 10.3).
Box 10.3
Overseas approaches to land assembly
Public authorities often have extensive powers to assemble land for housing and other uses. In the
Netherlands, municipal land companies purchase land under land assembly plans and have preemption rights over other buyers, including an option to expropriate land at existing-use value (before
value gains from redevelopment) and pay compensation to individuals from the income from new
developments. In Spain, the law similarly grants municipal developers the right to acquire land at
existing-use value.
When land is assembled, owners are paid for their land or receive a new land parcel in the developed
site, land at another site, a developed unit, cooperative housing, or equity in the development group.
Public land-banks are a common instrument for holding a share of the assembled land, which is used to
develop public amenities or sold to finance public infrastructure.
The acquisition process for land assembly begins with an overall development plan of a public or
private developer that identifies public and private parcels required for a development site, and an
assembly scheme. In the most basic approach, the developer or authority simply purchases all required
land from owners, either through mutual agreement or expropriation (with proper notification and
compensation). Alternatives are land swaps and land sharing. Land swaps (exchanges of parcels)
have been used in cities such as Arlington, Virginia; Dublin, Ireland; and Vancouver, British Columbia, to
build affordable housing.
Land-sharing schemes can help avoid relocation. In land-sharing schemes, the developer or authority
allows landowners to remain on part of the land and develops the most economically attractive parts.
Another commonly used approach is land pooling or land readjustment, in which the developer or
public authority assembles numerous parcels, subdivides the whole, and prepares the land for use
(bringing in roads and other infrastructure, for example). Then the public authority returns parts of the
land to owners in proportion to their original parcels and sells the remainder to cover costs.
Land readjustment has been used extensively in Japan, South Korea, and in the Indian state of Gujarat.
The origins of this approach date back to early 20th century, taking its roots from the Lex Adickes
laws that permitted the redevelopment of Frankfurt. During the development, a project organisation,
either public or private, readjusts lots based on a publicly approved plan and develops infrastructure
such as roads, parks, and water systems. A specified share of the landowners needs to approve the
plan. Sale of reservation land taken from landowners covers the cost of development. The owners
benefit from land-value increases after development. Japan applied land readjustment extensively after
the Kanto earthquake in 1923 and after the Second World War, helping close a post-war housing
shortage of more than two million units by 1964. By 2000, about 30% of total urban area in Japan had
been developed using this approach.
Source:
McKinsey Global Institute, 2014.
F10.4
There are a range of compulsory acquisition approaches used by authorities around the
world to assemble greenfield and brownfield land for development.
Submitter views on compulsory acquisition

Some submitters to the inquiry were positive about the role that compulsory acquisition could play.
Wellington City Council (sub. 21) submitted that territorial authorities should be given power to acquire
greenfield land for housing. Another submitter argued that compulsory acquisition overseas had provided a
strong incentive for landowners to develop land, or to sell to those who would:
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[I]n Europe, threat of compulsory acquisition for aggregation of land, mostly for public uses, tends to
keep land owners more pragmatic about holding out too aggressively, either for no development or
unearned oligopoly site value capture.
The use of eminent domain in the USA, on behalf of private sector developers, is very unpopular with
the public and almost certainly will be here landowners are quite rightly under sufficient threat as they
are in the path of urban growth, as to be kept realistic even if compulsory acquisition is not going to be
exercised on behalf of private developers. In fact land owners could be provoked to sell to private
sector developers sooner, rather than have their land compulsorily acquired later. (Philip Hayward,
sub. 41, p. 63)
F10.5
The existence of an agency with compulsory acquisition powers can encourage

landowners to develop their land or to sell it to those who will.
Te Rnanga o Ngi Tahu is opposed to compulsory acquisition, and emphasises the importance of just
compensation:
Te Rnanga is also of the view that we would oppose any loss of property rights or regulatory takings in
the tribal takiw. Te Rnanga also urges local and central government to fully consider the implications
of unnecessarily restricting the use of property and as such, should consider any compensation
provisions for doing so. (Te Rnanga o Ngi Tahu, sub. 63, p. 7)
Land has a special significance to Mori. The Waitangi Tribunal has consistently argued that the compulsory
acquisition of Mori land for public works is almost always a breach of the Treaty of Waitangi (see, for
example, Wai 863). Past legislation on compulsory acquisition has contained explicitly discriminatory
provisions for taking and compensating Mori land (Marr, 1997).
In its previous report into Housing affordability (2012), the Commission noted that multiple ownership had
often made it hard to develop dwellings on Mori land. This, and the location of some Mori land on the
outskirts of fast-growing cities, could make Mori land particularly susceptible to acquisition. Also, ethical
problems may arise with the compulsory acquisition of general land previously returned to Mori as part of a
settlement of historical Treaty breaches (including confiscations).
However, the need to assemble land for housing development can also provide opportunities for
partnership. Some Iwi are increasingly important developers in their region. Mori have much to gain from
resolving housing shortages.
F10.6
Any proposal for compulsory acquisition of Mori land would face sensitive Treaty
issues. Any regime to compulsorily acquire land for housing developments needs to
recognise both the associated risks and positive partnership opportunities.
Can taking land for housing be in the public interest?

Section 2.7 of this report discusses the range of outcomes that result from the current housing situation:
decline in home ownership rates;
New Zealanders devoting increasing shares of their income to housing, with associated impacts on
wellbeing;
a more uneven distribution of national wealth;
ongoing overcrowding in Auckland, with associated health and social costs;
a greater risk of economic volatility and macroeconomic instability;
barriers to labour market mobility;
an undermining of the effectiveness of monetary policy to manage economy-wide inflation; and
pressure on fiscal policy, through direct and indirect paths.
These are significant public harms. Compulsory acquisition of land to enable land development for housing
would help alleviate these harms.
F10.7
Circumstances exist in which the economic and social harms that result from a housing
shortage should be considered sufficient to justify the compulsory acquisition of land for
the construction of housing.
10.3 An urban development authority

Government land organisations generally known as urban development agencies play an important role
in urban regeneration and residential growth strategies in Australia, the United Kingdom, Hong Kong and
parts of the United States. Urban development agencies have a range of forms and functions, but typically
lead the development of specified areas. They may be permanent or time-limited bodies. In some cases,
they may have compulsory acquisition or planning powers, allowing them to amalgamate smaller
landholdings and rezone the combined site.
The Australian Productivity Commission (APC) in its review of planning, zoning and development
assessments, concluded that government land organisations (GLOs) can play an important part in speeding
up and de-risking development:
Greenfield subdivision developments seem to proceed more smoothly in areas where some
development has already occurred. As such, there may be a role for GLOs as the first developer into
new settlement areas. This would provide precedent planning decisions on which other developers
could base their due diligence and ensure major lead in infrastructure was in place. (APC, 2011a,
p. 184)
Discussing VicUrban (now Places Victoria), the APC pointed to their usefulness in initiating complex
brownfield developments:
VicUrban is a recent example of the increasing trend for GLO activities to be directed toward infill
[brownfield] developments. In these developments, some of the projects are so complex and high risk
that they are unable to attract private sector interest at least in the early stages of development. As a
result, many GLOs work to reduce the complexity of projects (for example, by remedying issues such as
fragmented land holdings and derisk development sites (for example, restore contaminated soil) to
a level where it is feasible for private sector developers to subsequently complete projects. (p. 153)
Davison et al. (2012) cites other possible benefits from the involvement of urban development authorities in
land development, including:
the potential for urban development authorities (UDAs), as the owners or regulators of the land, to attach
conditions to its final use to achieve social objectives (eg, greater provision of lower-cost housing);
greater scope to manage urban renewal, so that processes of change proceed in a co-ordinated
manner; and
an enhanced ability, as the owners of amalgamated or renewed land, to capture some of the uplift in
land value that accrues from redevelopment for community use (pp. 8788).
UDAs also play a role in bringing affordable housing to market in some Australian states, but their
effectiveness appears to depend on the agencies having sufficient planning powers, independence and
clear targets (Davison et al., 2012, pp. 8889). Kellys (2011b) review of place-based development
concluded that
[m]any of the most successful organisations have used temporary planning powers, owned or acquired
substantial amounts of land, and combined public and private investment. (p. 20)
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The Commission heard from its engagement meetings in Australia that some UDAs were pioneering the
development of new housing typologies, such as smaller apartments and new design formats. These
strategies were aimed at increasing housing choice. This innovation also sets a precedent (and gives
confidence) for private sector developers to follow (ie, a demonstration effect).
There have been several suggestions for UDAs in New Zealand.
In 2006 a report commissioned by the Ministry for the Environment proposed creating a national and
regional urban transformation corporations, to undertake urban regeneration, and demonstrate
commercially viable, sustainable developments (SGS Economics & Planning, 2006).
A 2008 discussion paper from an inter-agency Sustainable Urban Development Unit sought feedback on
a development organisation to coordinate planning and investment, assemble land, and operate
streamlined planning and consenting processes.
The Urban Taskforce (2009), reporting to the Minister for Building and Construction, recommended
creating an Urban Development Agency model based on a set of clear partnering principles to deliver
urban development projects (p. 4). It said: To accelerate both the quantity and quality of urban
development, a tried and tested approach to complex urban development is needed. Urban
development agency models are commonly used to bring all the parts of an important development
package together in a consistent and integrated manner (p. 3).
F10.8
Urban development authorities can play an important role in de-risking development

and bringing land to market.
New Zealand practice

No territorial authority within the scope of this inquiry currently has a UDA in place. However, two local
authorities are each actively considering establishing one.
Wellington City
The Wellington City Council considers significant opportunities exist to redevelop and intensify a number of
areas, including the central city and a number of identified suburban growth areas. The Council submitted
that it was considering launching a land development agency as a council controlled organisation (CCO) to
redevelop areas in the centre of Wellington and various suburban growth areas.
Wellington City Council noted in its submission that it is
considering establishing a land development agency to implement the economic growth initiatives
proposed in the Long Term Plan and to deliver affordable housing. However the Council also needs to
be able to use enhanced urban regeneration powers to acquire, assemble and develop land for
affordable housing.
Strategic land-use and masterplanning of developments and communities is a common approach in
many overseas jurisdictions. Markets respond well to this as it is seen as value adding and provides
investment certainty for governments, councils, developers, private partners, the public and potential
land buyers. this can provide certainty to the market and lead to private sector investment and
growth in the local and national economy.
These sites [identified growth areas] are characterised by fragmented/multiple land ownership and a
variety of land uses. Development visions are hard to realise due to their complex nature and the limited
mechanisms available to actively bring about change.
The Council is consider[ing] launching a land development agencyEnhanced urban regeneration
powers to acquire, assemble (and develop) land for affordable housing are required alongside this
proposed Council CCO to make this happen. These powers could also be extended to apply to central
government development agency, or a public private partnership. There would need to be strong
controls around this development right. (Wellington City Council, sub. 21, pp. 12, 20, 5051)
Auckland
Auckland Council has two CCOs involved in developing property:
Auckland Council Property Ltd, which undertakes all property acquisitions and disposals for Auckland
Council and Auckland Transport, managing around $900 million worth of assets. For example, it owns
90% of the property being developed in partnership with Todd Property into Ormiston Town Centre in
Flat Bush.
Waterfront Auckland, which manages 45 hectares of waterfront property that includes Wynyard Wharf,
much of Wynyard Quarter, Westhaven Marina and part of Queens Wharf.
Auckland Council announced in November 2014 that it had agreed to combine these two CCOs to form an
urban development agency, known as Development Auckland. The new organisation would
have a key role in helping deliver the council priority of quality urban living and will have the mandate to
deal with the challenge of Aucklands rapid growth through regeneration and investment. The agency
will have the capability to deliver public and private development and infrastructure, including housing,
across the region. (Auckland Council, 2014c)
The Commission understands that Development Auckland would use market transactions, rather than
compulsory acquisition powers, to carry out urban development projects. The proposal to establish
Development Auckland will be consulted on as part of Auckland Councils 2015 Long-Term Plan. If
approved, the organisation could be in place by September 2015.
F10.9
No territorial authority within the scope of this inquiry currently has an urban
development agency in place. However, the Auckland and Wellington City Councils are
actively considering establishing such agencies.
Models for urban development agencies

A range of models for UDAs exist within New Zealand and internationally.
Tmaki
The Tmaki Redevelopment Company was formed in 2012 and is jointly owned by the Government and
Auckland Council. Its aim is to regenerate parts of Glen Innes, Point England and Panmure:
The area has a high proportion of state housing (56 percent) with HNZC owning approximately 2,870
properties in the area but relatively low density housing. The community has high levels of deprivation,
low levels of educational achievement, low labour force participation, low incomes, high unemployment,
and high dependence on social security benefits. (New Zealand Treasury, 2013, p. 11)
However the company has expressed frustrations at the slow pace of development. Only 32 dwellings are
under construction, of a targeted 7 500 new dwellings in the area (Grieveson, 2015).
Some reasons for the lack of progress to date in Tmaki may include:
the lack of statutory powers hampering the companys progress, in particular rights to use Housing
New Zealand Corporation (HNZC) properties;
an insufficient balance sheet for the scale of the project Government and Council invested $5 million
and $3.5 million in the companys establishment respectively;
a constitution that gives both parents (Council and Government) veto powers over projects; and
a lack of private sector participation, including private sector capital.
In April 2015 the Government announced a transfer of 2 800 state houses to the Tmaki Redevelopment
Company and access to a $200 million loan facility, to address some of these issues.
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Hobsonville
HNZC purchased 167 hectares of land for housing purposes at the former Hobsonville Airbase in the
northeast of Auckland and established the Hobsonville Land Company, a wholly owned subsidiary of HNZC.
Development of this land is being facilitated through a collaborative partnership with the private sector.
Through a tender process, Australian-listed company AV Jennings was appointed in 2007 as the preferred
partner to develop the first stage of the Hobsonville development. Subsequently, AV Jennings has
contracted several New Zealand group-home builders to build the houses. The Hobsonville development is
a 1015 year project that will deliver around 3 000 dwellings.
Christchurch
Welles Street and Colombo Street
In 2008 the Christchurch City Council bought properties at Welles Street and Colombo Street because the
sites were considered necessary to realise the Councils vision for the inner city (van Beynan, 2010).
In the 2014 Housing Accord, the Council agreed to make the properties available at fair market value with
deferred payment; and the Government agreed to establish a $75 million Christchurch Housing Accord Fund
to develop these and other suitable sites that may be identified in future.
Following a tender process, the Government has contracted with Fletcher Living to build 191 new dwellings
on the properties over the next two years, including apartments and terraced houses. Of these homes, 38
will cost less than $450 000 the local threshold for the Governments KiwiSaver HomeStart subsidy scheme.
As an incentive, payment for the land has been deferred until the development is complete.
Awatea
The Government has contracted Fletcher Building to build 237 standalone and terraced homes at
Awatea/Carrs Road. The site is Crown-owned and the properties will remain in Crown ownership until
construction is completed. Of the homes, 89 will have a purchase prices of less than $400 000; 50 will involve
shared-equity ownership with the NZ Housing Federation.
Australia
As discussed above, a number of the Australian state land corporations established in the 1970s evolved into
development agencies, partnering with private sector developers to masterplan projects.
Both LandCorp in Western Australia and Economic Development Queensland have planning powers. In the
latter case, land designated for redevelopment is carved out from the local council for the duration of the
project. Economic Development Queensland sets infrastructure standards and undertakes all planning
processes. When construction ends, authority is returned to the council, and the relevant infrastructure
provider must accept ownership of the infrastructure that has been built.
UrbanGrowth New South Wales
UrbanGrowth NSW is a state-owned corporation, established in 2013 from the merger of two previous
development agencies (LandCom and the Sydney Metropolitan Development Authority). While its
predecessor organisations were focused on development in greenfield areas, UrbanGrowth NSWs priorities
are:
major urban transformation projects: a pipeline of complex large-scale urban revitalisation programs
that provide infrastructure, housing, jobs, and economic and social benefits that support the
government's broader objectives for the state (UrbanGrowth NSW, n.d.); and
wholesale projects: redeveloping (eg, owning, rezoning, and masterplanning) surplus government land
to maximise both its resale value to the private sector and residential potential.
Projects are selected based on the locations importance to the state or region; the potential to deliver
significant housing mix, job and community amenity, the nexus between development and public
infrastructure, particularly transport, the involvement of government-owned land and the need for
leadership across multiple government agencies. UrbanGrowth NSW has an overall goal of delivering 10 000
homes over four years (from March 2011).
UrbanGrowth NSW does not have planning or compulsory acquisition powers. It uses its large balance sheet
(total equity in 2013/14 of A$425.5m) to finance the amalgamation and preparation of land.
UK
London Docklands Development Corporation
The London Docklands Development Corporation (LDDC) was established in 1981 to renew 2 400 hectares
on the banks of the Thames River which had fallen into disuse. The board of the LDDC was appointed by the
Secretary of State for the Environment, and the Corporation had a range of powers, including the ability to
compulsorily acquire land and act as the sole development approval authority. LDDC was vested with large
amounts of public land and received annual operating grants.
The LDDC was wound up in 1998, and the Docklands was progressively handed back to three local
governments between 1994 and 1998. The redevelopment quadrupled the number of residents and jobs in
the area between 1981 and 1998, creating 24 000 new dwellings (40% of which were targeted at people on
average wages). The redevelopment also led to a range of other attractions and amenities, including
restaurants, concert halls and galleries.
Best practice in Urban Development Authorities

In its 2012 report into Housing affordability, the Commission examined a range of collaborative approaches,
including development agencies overseas. It found that there was scope for councils, developers, land
owners and builders to collaborate in bringing affordable housing to market, by ensuring the alignment of
land release in suitable locations, the provision of infrastructure, and market demand (p. 102).
Box 10.4
housing
The Commissions 2012 comments on collaborative approaches to developing
What might a collaborative approach look like?

Different approaches can be taken to collaboration. It may be:
driven by a strong planning mandate with the power to require diverse agencies to comply
with regulations requiring the release and development of land in a particular order and
manner;
facilitated by collaborative planning and coordinated investment among agencies and

investors;
planned jointly and then subject to joint agreements for the delivery and coordination of
regulatory changes (plans) and investment in infrastructure and services;
subject to planning and implementation through a special purpose agency on a project basis;
undertaken by a special purpose regional or city-wide development agency or corporation

with the capacity to declare areas for urban re/development, undertake the planning, and
enter into contractual and other arrangements for delivery, including direct investment.
In determining the preferred approach it is useful to consider other models that can provide
insights about what has worked well and what hasnt in different circumstances. The Commission
has looked at the collaborative approach adopted by Auckland for regional land use before the
creation of a single city; the integrated planning approach adopted by the New Zealand Transport
Agency; the Hobsonville Development; Places Victoria, an urban renewal authority in Victoria
Australia; and the Queensland Urban Land Development Agency
This is a limited survey, some preliminary findings are:
Centralised planning and regulation are likely to fail through inadequate knowledge of needs
and capacities, and the difficulty of anticipating issues and enforcing behaviours.
Voluntary collaboration appears to fail through lack of commitment to or capacity for local
implementation of high-level plans by partners.
A weak statutory base or lack of explicit precedence (of development plans relative to other
plans) in any empowering statutes will also frustrate implementation.
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The creation of a statutory or similar agency to bring urban land to the market may range
between a multi-purpose (regional) development authority through to a project-specific
entity. Circumstances that call for focused short- to medium-term initiatives should favour the
latter.
A specialised land development agency may be empowered (or required) to behave in a

commercial way when undertaking land transactions and development, subject to specific
policy and statutory requirements. It is important that governance provisions ensure that
other public objectives do not infringe on its activities.
Too broad a role or too many instruments may undermine the performance of land
development authorities because of the demands placed on resources, skills and
management, the loss of clarity over mission, and the confusion that it might give rise to in
the market.
There might usefully be an organisational and governance differentiation between planning

and the implementation authority. Questions of balance between environmental and
development objectives, existing and future residents rights, commercial and noncommercial objectives may require adjudication by a third party. Given the primary objective
of bringing substantial areas of housing to the market, such adjudication might be given
effect by means of the terms of declaration of lands development status and via ministerial
call-in provisions.
It is important to determine how infrastructure providers might be committed to

implementation, especially with mixed private and public participation in large-scale
development.
Importantly, the approach adopted will need to suit the urgency of the situation, and will reflect
the likelihood of successful delivery without it.
Source:
NZPC, 2012, pp. 12223.
The Urban Taskforce (2009) recommended a set of partnering principles that should guide an urban
development agency in New Zealand (Box 10.5).
Box 10.5
Urban Taskforces Partnering Principles for an Urban Development Agency
At the outset, there is a clear and agreed vision for a development. This vision should be
defined to the point where there is a clear development concept, and a commercial, and
bankable, proposition for the private sector.
The respective parties bring the skills (and assets) that only they can bring to the table, and
should manage those risks that they are most capable of managing.
That there is an enforceable commitment upon each party to deliver its part of the
development, and commercial penalties if there is default on the part of any party.
Land assembly, regulatory/consenting processes and infrastructure/amenity development

should be (substantially) completed before private sector capital is called upon.
There should be contestability for the delivery of services as far as practical.
Commercial arrangements should be used to bring the parties together which, once
established, should be operated on an arms-length basis outside direct central or local
Government political control.
A separate partnership should be created for each development with the partnership model
and terms/conditions being tailored to the specific features of each development.
Central Government would need to have a capability (possibly based in an existing

department) to manage growth and co-ordination issues over a range of partnerships.
Source:
Urban Taskforce, 2009, p. 30.
Should New Zealand have an Urban Development Authority?

A number of submitters to the inquiry argued that similar institutions were needed in New Zealand, in
particular to deal with issues of fragmented landholdings, dealing with sites where there is market or
regulatory failure (Property Council New Zealand, sub. 33, pp. 56), or intervening to promote a greater
supply of affordable housing (Greater Christchurch Urban Development Strategy Partnership, sub. 18, p. 5).
After discussing land assembly problems, Selwyn District Council submitted:
It is considered that in the right circumstances a development agency with powers of land
amalgamation could be considered appropriate. (sub. 45, p. 11)
A UDA would be a suitable vehicle for the use of compulsory acquisition to amalgamate parcels of land for
development and redevelopment, and for capturing the uplift in value that comes from upzoning,
coordinating infrastructure provision, and catalysing development on a scale required to address the
challenges identified in this report.
A range of design features would need to be considered (Table 10.3).
Table 10.3
Design feature for an Urban Development Authority
Design features
Considerations
Should the UDA focus on

Auckland or have a wider
mandate to focus on
growing cities?
Chapter 2 notes that although recent debate on the performance of the housing
market has focused primarily on Auckland and Christchurch, affordability problems are
widespread.
Should New Zealand have

one national UDA or a
number of regional
agencies?
One national UDA would allow the organisation to source private sector talent and
build expertise in undertaking projects at scale. It would also allow it to diversify its
holdings and projects to manage risks. The existence of a national UDA would not
preclude establishing separate partnerships for separate development projects.
Opportunities exist in Wellington for a local urban development authority to redevelop

identified growth centres, or greenfield development in Wellingtons north.
Central government appointees to the board of a UDA may more likely be meritbased, rather than political appointees. They may also be better placed to resist some
local political pressures that are against development.
One option would be to have a national UDA that partners solely with the private
sector in some projects, and partners with the private sector and local government in
other projects. In the latter case, while the project would seek to deliver outcomes
sought by local government, it would be important to ensure that the projects
continued to operate on a commercial basis separate from local political control.
Should a UDA operate in
greenfield, brownfield, or
both?
This report argues that there is a need to remove restrictions on the growth of cities,
both up and out. Giving a UDA a mandate to operate in both greenfield and
brownfield will enable it to pursue the most promising developments based on market
opportunities and its own landholdings.
On the other hand, too broad a focus may undermine its performance because it is
likely to require additional skills, and a lack of role clarity.
The United Kingdom has separate mechanisms for undertaking each type of activity,
with different powers.
Should a UDA have powers

of compulsory acquisition?
This chapter has argued that power of compulsory acquisition is an important part of
enabling developments of sufficient scale. It would also better enable a UDA to capture
value uplift where it can compulsorily purchase land based on the value of land before
the project is announced.
Should a UDA have

planning powers?
Attracting sufficient private investment is likely to involve removing planning risks. In

Queensland this involves removing the development area from the jurisdiction of the
local council for the duration of the development. It is also subject to streamlined
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Design features
Considerations
planning processes and more enabling land use rules than are available under existing
local government plans.
This would also allow a UDA to meet market needs that are currently stymied by local
land use regulations, including in some cases the construction of well-designed smaller,
more affordable, and denser, dwellings. Overcoming the unduly restrictive land use
regulations in both greenfield and brownfield sites, as discussed in Chapter 5 (which
result in part from the democratic failures discussed in Chapter 9), will be an important
enabler of success.
However, separation of planning powers from development activities is also likely to be
required to ensure that environmental considerations are not unduly compromised so
in order to facilitate profitable developments.
How should development

opportunities be chosen?
A UDA should have the ability to operate as an open market land developer, as well as
operating in areas designated by a Minister. The process for designating SHAs shows
that requiring local government agreement to development sites is unlikely to result in
the designation of a number of development or redevelopment areas on a sufficient
scale.
Should a UDA have the

power to construct its own
infrastructure?
Integration of infrastructure provision is likely to be a key mechanism to achieve

efficiencies. It would be untenable for the development activities of a UDA to be
subject to frustration by reticent local infrastructure providers. A model in which council
infrastructure providers are obliged to accept assets that are constructed to minimum
standards is attractive, although care is needed to consider any demands on the wider
networks.
Should a UDA be required

to produce affordable or
social housing?
A UDA should operate on a commercial basis, but could also be tasked with providing
a range of dwelling typologies, including those not being delivered adequately by the
current new-house market. For some, but not necessarily all projects, this should
include producing affordable dwellings.
Different planning rules might allow the production of, for example, smaller dwellings
on a commercial basis. However, this raises questions such as should a UDA be asked
to produce affordable dwellings on a non-commercial basis? And, if so, on what terms?
It is notable that the initial intention to produce a large number of affordable homes as
part of the Hobsonville development has not been realised.
How should a UDA be

capitalised?
A UDA would require significant start-up capital, which over time should be returned
through the sale of developed land. A large cash injection will be needed, but a UDA
could also be capitalised through transfers of surplus Crown-owned land. Such
transfers could form the cornerstone of development projects.
Should a UDA be
responsible for meeting
dwelling targets?
Chapter 4 discusses the role that dwelling targets can play in incentivising councils to
facilitate development, and Chapter 8 suggests that infrastructure providers should be
tasked with supporting those objectives through their SOIs. Alternatively, a UDA could
be tasked with delivering a targeted number of dwellings in a city.
Giving a target to both a UDA and a council is likely to weaken their incentive effect,
because accountability for meeting the target is dispersed.
The need for action to facilitate the use of land for housing justifies the establishment of a UDA to fast-track
the development of large-scale projects that could not be carried out by the private sector alone. A UDA
would:
assemble public landholdings with private landholdings to allow development on the required scale;
coordinate and integrate the delivery of infrastructure;
spatially masterplan large-scale residential development projects;
partner with private sector developers to deliver those projects; and
operate under streamlined planning and consent processes.
How a UDA would exercise powers of compulsory acquisition

Compulsory acquisition is provided for in a number of New Zealand statutes, based around the Public Works
Act 1981.
In New Zealand, the Public Works Act 1981 gives the Minister of Land the power to acquire any land,
required for any Government work (s 16 (1)). 48 Government work is a work or an intended work that is
to be constructed, undertaken, established, managed, operated, or maintained by or under the control
of the Crown or any Minister of the Crown for any public purpose, including any work that the Crown is
authorised to undertake by any other Act. Local authorities are similarly empowered to acquire land for
local works. Taking of land wholly for private purposes is not authorised (see Bartrum v Manurewa, 1962).
The Local Government Act 2002 authorises local authorities to compulsorily acquire land that is
necessary or convenient for the purposes of, or in connection with, any public work that the local
authority was empowered to undertake immediately before 1 July 2003 (s 189). At that time, local
authorities had the explicit power to undertake and carry out urban renewal in the district (s 644B of
the Local Government Act 1974).
The RMA provides that a network utility operator may apply to the Minister of Lands to have land
required for a project or work acquired or taken under the Public Works Act 1981 as if the project or work
were a government work within the meaning of that Act.
The Canterbury Earthquake Recovery Act 2011 provides the Minister with the power to acquire land, but
imposes a narrower compensations regime than would be available under the Public Works Act 1981.
These powers have been used to amalgamate sites required for the East Frame of central Christchurch.
The East Frame is intended to deliver about 750 dwellings on approximately 13 hectares, as well as retail
and recreation facilities. The Crown had to acquire 92 properties for the East Frame, but acquired most
by agreement, with 9 being compulsorily acquired (Brownlee, 2013).
Section 5 of the Housing Act 1955 gives the Governor-General power to use the Public Works Act 1981
to take land required for State housing purposes; the taking of Mori land under this provision
requires the consent of the Minister of Mori affairs. Section 2 defines State housing purposes as
the erection, acquisition, or holding of dwellings and ancillary commercial buildings by the Crown under
this Act for disposal by way of sale, lease, or tenancy; and includes the acquisition of land by the
Crown
(a) as sites for dwellings and ancillary commercial buildings:
(b) for schemes of development and subdivision into sites for dwellings:
(c) for motorways, roads, streets, access ways, service lanes, reserves, pumping stations, drainage and
water works, river and flood protection works, and other works upon or for the benefit of the land so
acquired or the occupiers thereof.
The application of existing compulsory acquisition powers to situations of urban development are not clear
(Sustainable Urban Development Unit, 2008). The powers under the Public Works Act probably could not be
exercised by a Crown entity or company operating at arms length from Ministers. The powers under the
Local Government Act appear to be seldom, if ever used, so their application is uncertain. The powers in the
Housing Act 1955 look like they may enable the taking of land for the sort of developments envisaged,
including the sale of completed dwellings, but this would need to be tested.
The courts have held that land was "required" if its acquisition was, viewed objectively, essential or reasonably necessary rather than, in some general
sense, desired (Seaton v Minister for Land Information).
48
293
294
If uncertainty exists, legislation establishing a UDAs should similarly provide for that UDA to be able to
acquire land as set out in the process outlined in the Public Works Act 1981, as if it were government work.
Other non-core Crown agencies have been similarly empowered:
The Heritage New Zealand Pouhere Taonga Act 2014 empowers Heritage New Zealand to acquire,
restore, conserve, and manage historic places and areas (s 14(1)); and
The River Boards Act 1908 empowered River Boards to take land under the Public Works Act 1981 for
river works (s 74).
To prevent any risk of a UDA exercising compulsory acquisition powers in respect of its general trading in
land, it may be desirable that such acquisition only be permitted within areas designated by Order in Council
for development or redevelopment. Another proviso for such acquisition should be that the compensation is
based on the pre-designation value of the land, so as to allow the UDA to capture the uplift in value that
results from the designation of development/redevelopment.
The offer back provisions of the Public Works Act would likely need to be limited to situations where the
land was no longer needed for the development. It would be impractical to take land, redevelop it
significantly, and be required to offer the land back to the original owner.
Risks
Using a UDA has risks.
If a UDA is focused on enabling developments on a scale that could not otherwise occur through
assembly powers, then this aspect of its work would not crowd out private investment. One possible risk
is that as the UDA moves to develop land, its activities could start to crowd out private sector efforts.
Requirements to partner with private sector developers are essential. It may be worth ensuring that
processes to select developers as partners are operated at arms length from the exercise of assembly
powers.
Another risk is that a UDA might not operate in a competitively neutral way. This risk may be heightened
where the UDA has acquisition or planning powers. This risk can be mitigated by requiring Ministers to
designate areas where such powers can be exercised. Ideally, these areas would be based around areas
where public landholdings could form the core of the project. Economic Development Queensland has
an internal structural separation between its planning and development functions so as to promote
competitive neutrality.
Financial risks are associated with any commercial venture. Although it has since recovered under new
management, Places Victoria recorded large losses in 2012-13. The company had not been operating in
a commercial manner, was overstaffed, and had acquired non-commercial sites. Mitigating such as risk
requires that a UDA operate in a commercial manner, with strong governance and leadership.
Given the historically high price of land in Auckland, a UDA would risk suffering losses should that high
price decline. However, a fall in land prices also provides an opportunity for a UDA to acquire sites on
favourable terms. Through trading in land, a UDA could operate an important role in smoothing the
peaks and troughs of such property cycles.
Another risk is that UDA could be established or operated in a way that undermined its ability to achieve
its objectives. Examples include it is undercapitalised, lacks necessary powers and functions, or
government is unwilling to designate development sites or redevelopment sites that the UDA can
operate in.
R10.2
There is a place for a UDA to lead and coordinate residential development at scale in
both greenfield and brownfield settings, working in partnership with private sector
developers. Legislation would be required to establish and give powers (such as
compulsory acquisition) to one or more UDCs in New Zealand.
The Commission is interested in submitters views on design features of a UDA, including any risks.
What are the important design features of an Urban Development Authority? What are
the risks with this approach, and how can they be managed?
Q10.1
10.4 Funding growth-enabling infrastructure through value capture

Chapter 7 discusses the range of options open to local government to fund infrastructure growth. However,
there is also a demonstrated unwillingness to use these options to the degree required. Value capture
mechanisms are often used around the world to capture the increase in value created by public action such
as rezoning. This section discusses how this approach might work in New Zealand.
Value capture
Land can appreciate in value because of the actions of the community or the landowners. Likewise, the
actions of landowners and the community can create benefits for the community and for private landowners
(Figure 10.2).
Figure 10.2
Types of land value creation
Increase in land value

captured by
the community
the
community
Increase in
land value
generated
by
private
owners
Source:
eg, preservation of
beaches and parks
that are accessible to
the public
eg, the
preservation of
private wetlands
private owners
eg, changes in zoning, public

investment in utilities, and the
provision of public services
such as schools
eg, beautification
of a large private
garden
Adapted from Brown & Smolka, 1997.
Value capture mechanisms are public policy instruments that capture or reserve for community use some of
the uplift in land value created by public actions (the top right quadrant of Figure 10.2). These public actions
include rezoning to allow higher value activities (upzoning) or the provision of infrastructure, and the value
of the rezoning or infrastructure is capitalised into the land price.
The justification for value capture is that the increase in values is not caused by the landowners action, and
is therefore unearned. John Stuart Mill wrote:
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296
Suppose that there is a kind of income which constantly tends to increase, without any exertion or
sacrifice on the part of the owners: In such a case it would be no violation of the principles on which
private property is grounded, if the state should appropriate this increase of wealth, or part of it, as it
arises. This would not properly be taking anything from anybody; it would merely be applying an
accession of wealth, created by circumstances, to the benefit of society, instead of allowing it to become
an unearned appendage to the riches of a particular class. (Mill, 1848, Book 5, Chapter 2, 5)
The corollary of the argument that a landowner has no automatic entitlement to retain value that results from
community action would be that the community has a right to retain the value generated by the public
investment.
When broadly applied, value capture mechanisms could shift incentives to discourage speculation in land
and increase land availability, in turn causing lower land prices, a lower cost of living, and reduced poverty
(Brown & Smolka, 1997).
Value capture mechanisms have become widespread internationally in urban development. They capture
localised increases in value caused by specific regulatory changes or infrastructure investments, most
commonly public transport initiatives. In this way, localised value capture mechanisms can generate
financing for public projects that would otherwise be difficult to initiate, including addressing the sort of
infrastructure funding gaps identified in Chapter 6.
One problem with value capture mechanisms is the difficulty in managing situations where public action
such as downzoning reduces the development capability of land, and therefore its value worsenment
(Walters, 2013). However:
with a betterment levy a local authority is better placed to pay compensation;
in areas of population growth, generally many more public actions will increase land value than decrease
it; and
if planning and infrastructure decisions are efficient and rational, then they should in each case generate
more increase in value than decrease in value.
Liability to compensate would also encourage planners and local politicians to consider the implications of
downzoning carefully:
If local authorities were required to provide compensation for regulatory takings BusinessNZ would
expect them to take more care when regulating private interests in the public interest. (BusinessNZ,
sub. 16, p. 6)
F10.10
It is justifiable for the public to capture some of the increase in private land value that is
created by public actions.
Models of value capture

Walters argues that four conditions are necessary for capturing value:
land values must increase as the result of some public action or investment, such as rezoning or the
provision of infrastructure;
a valuation process must be implemented that identifies the change in land value and incorporates that
change into the taxable value of the land;
either a special tax must be levied or the broader tax rate applied to land must be maintained at a
sufficiently high level to capture the desired share of the increased value; and
the collection efforts must be sufficient to realise the increased revenue (Walters, 2013, p. 7).
However, a tax is not the only mechanism that can capture publicly created increases in land value. This
section discusses four types of value capture:
1. A land value increment tax

2. Betterment levies
3. Market participation
4. Negotiated contributions.
This is not an exhaustive list of value capture mechanisms. For example, inclusionary zoning (discussed in
Chapter 5) is also a way of capturing the value from rezoning).
Land value increment tax

A general tax on land value would indirectly capture increases of value that result from public action. Brown
& Smolka (1997) make four conclusions about land taxes:
1. An ethical argument exists for capturing publicly created value in land.
2. Substituting other taxes with a land tax is economically efficient.
3. Land taxes tend to lower land prices, 49 and reduce incentives for speculation, 50 both of which are
desirable and which benefit in particular low-income households.
4. The revenue from a land tax could cover a major part of public infrastructure investment.
A pure land value tax is attractive for a range of reasons (see the discussion of land value rating in Chapter 9).
However, because it also taxes the pre-intervention land value, it is a blunt instrument for capturing value
uplift.
An alternative is a tax on the incremental increase in land value after a fixed point in time, as proposed by
Mill:
From the present date, or any subsequent time at which the legislature may think fit to assert the
principle, I see no objection to declaring that the future increment of rent should be liable to special
taxation; in doing which all injustice to the landlords would be obviated, if the present market-price of
their land were secured to them; since that includes the present value of all future expectations. With
reference to such a tax, perhaps a safer criterion than either a rise of rents or a rise of the price of corn,
would be a general rise in the price of land. It would be easy to keep the tax within the amount which
would reduce the market value of land below the original valuation: and up to that point, whatever the
amount of the tax might be, no injustice would be done to the proprietors. (Mill, 1848, Book 5, Chapter
2, 5)
Land value increment taxes are also known as betterment levies, and valorisation taxes. They typically allow a
local authority to claim back as a charge from a landowner some proportion of the increase in value resulting
from the public action. Theoretically, up to 100% of the unearned increase should be able to be collected (in
1909 the UK Government introduced a short-lived betterment tax of 100%), but it has more commonly been
set at a rate between 30% and 75%.
A land value increment tax is likely to be even more effective than a land tax in encouraging a landowner to
develop land to its full potential, or sell it to someone who will, because it is a large tax assessed over a
relatively short timeframe (Slack, 2006, p. 216).
Betterment levies
Betterment levies differ from land value increment taxes in that rather than being an ongoing mechanism,
they are levied following specific individual actions, such as rezoning or the construction of public transport.
A land tax would cause an immediate fall in the value of land equal to the net present value of the future land tax liabilities. Coleman & Grimes (2009)
estimate a 1% land tax would reduce land value by 16.7%.
49
50
Speculators acquire land and hold it while they seek to discover its most valuable uses. A land tax reduces the return from being the one who possesses
land when its improved prospects become known. Less effort will be spent in seeking to discover what land will rise in value and in seeking to acquire land
in advance of when the rise in value becomes generally known. As a result, less land will be withheld from development (Tideman,1982; 2004).
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298
New Zealands Town Planning Act 1926 provided for each local authority to set up a betterment fund from
which to meet compensation claims and other expenses. It was not, however, a success:
The fund was to be provided by the payment to the local authorities concerned of one half of the
betterment increase in the value of any rateable property, such value being attributable to the approval
or the carrying out of any work under, or in accordance with the town planning scheme.
History has shown the legislation was in vain and that no betterment was ever collected, or as far as I can
ascertain, paid out. (Hearn, 1987, p. 3)
Betterment levies have a long history in Latin America, but are also used in other countries (Box 10.6).
Box 10.6
Examples of Betterment Levies
The United Kingdom has seen several attempts to implement a betterment levy. In 1909 a
betterment tax was introduced, although it was immediately reduced from 100% to 50% (Booth,
2012, p. 77). In 1947 the Town and Country Planning Act essentially nationalised all development
value, with developers able to buy back development rights. But this was abolished after four
years. In 1965 a 40% betterment levy was introduced, then removed by a new government three
years later. In 1975 a 60% tax on incremental value resulting from development approval was
introduced, but was repealed in 1985. These efforts appear to have been beset by administrative
challenges, and encouraged landowners to hold land until the tax was abolished and so contribute
to land shortages. A betterment levy proposed in 2006 (the Planning Gain Supplement) was never
adopted.
Australia has seen numerous attempts to implement betterment levies. A 1967 Sydney Betterment
Levy was set at 30% and applied only at the fringes of that city. It raised $9 million, but was
repealed in 1973. Only in the Australian Capital Territory has a betterment tax survived, facilitated
by the ACTs leasehold tenure system (the Lease Variation Charge is 75% of the uplift in value).
However, it only generates about $15m, far less than expected when it replaced the previous
scheme.
In Denmark, a special land development gains tax (frigrelsesafgift) was imposed when farmland
was legally transferred to an urban zone. This was equivalent to about 50% of the increase in value
resulting from the rezoning. The tax was repealed in 2004.
In Poland, land is subject to a tax of up to 30% of the uplift in value if it is sold within five years of
rezoning.
In Colombia, betterment levies (Contribucin de Valorizacin) have been in place since 1921 as a
cost-recovery mechanism Levies collected must be used exclusively to finance the project
generating the increase in value. Since 1997, cities are required to capture 30% to 50% of the uplift
in value from rezoning. However, it took some years for cities to start collecting revenue. Apart from
Bogat, revenue collected appears to be small. Further, evidence suggests that, to avoid paying tax
under this mechanism, landowners have been reluctant to sell their land.
Source:
Day, 2006; Walters, 2013.
A review of betterment levies shows that, in practice, they are difficult to sustain. They are easily
characterised as new taxes and can become politically contentious. The final report of the New South
Wales Planning and Environment Commission in 1975, following the abandonment of the Sydney
Betterment Levy, highlighted the practical and political difficulties associated with implementing betterment
levies:
No government in Australia has yet been able to devise a politically viable betterment tax. The
termination of the last betterment tax in New South Wales is probably too recent for the State
Government to agree to the imposition of some form of betterment in the foreseeable future. Yet many
would argue that it was successful as a tax, that it was relatively simple to implement, that it gained wide
acceptance, and that it produced funds that were necessary to implement plans the Commission
believes that the possibility of introducing a similar type of tax should not be discarded. (NSW Planning
and Environment Commission, 1975, p. 98; quoted in Day, 2006, p. 222)
The unsteady history of betterment levies, particularly in English-speaking countries, is important because if
the betterment levy is not expected to continue indefinitely, then landowners will be encouraged to hold
land, or discouraged from seeking rezoning, in the expectation that the policy will be repealed. Such a
situation would worsen land shortages and, in turn, contribute to higher housing costs. Walters (2013) and
Day (2006) report that this was the experience in previous UK attempts at betterment levies.
A second common objection to betterment levies is the difficulty inherent in accurately valuing land
(separate from improvements). This is also discussed in Chapter 9, in the context of land value rating
systems:
The general premise that if the state creates value by declaring land developable, the state should be a
beneficiary of that value, is unimpeachable. Knowing exactly what that value might be or when return of
it to the state might take place is quite another matter. This is not just a question of the difficulties
planners face in assessing the capacity to make obligations (in Britain) or the level of contribution to
infrastructure (in France). How to arrive at land values is a fundamental issue that appears to confound
everyone from real estate experts to government officials. (Booth, 2012, p. 89)
Market participation
Land value capture can also be undertaken through public agencies buying and selling land, capturing
betterment in the process. In Australia this has been common practice by states to varying degrees:
All States either have one or more development corporations in operation or retain the option of setting
these up to tackle particular urban regeneration or growth management challenges. In some cases,
most notably SA [South Australia], development corporations have been used to bank large areas of
future urban land, using one-off special purpose funds from the Commonwealth. The subsequent
release and development of this land has enabled the State Governments in question to capture all of
the value uplift created in the process. (SGS Economics & Planning, 2007, p. 11)
In the early 1970s, the South Australian government purchased most of the land within the Urban
Containment Boundary, capturing the capital gain for the public and the betterment as it was rezoned and
serviced. Of the Australian state land corporations established in the 1970s, the South Australian Land
Commission was the most comprehensive in terms of scope, and largely restricted its activities to the
retailing and wholesaling of land (rather than development).
The South Australian approach is a long-term enterprise; if a government agency purchased large volumes
of land at market rates today for development and sale over a number of years or decades, the anticipated
future uses would be incorporated into the price. This would be a weak way of capturing value increases.
This option would require identifying or establishing a suitable agency for the purpose, and would entail
some significant upfront costs.
Negotiated contributions
After numerous attempts at trying to implement land value uplift taxes and betterment levies, the UK
Government now provides for local planning authorities to negotiate planning agreements with developers
that involve contributions of cash, land, or other concessions (including the provision of affordable homes).
This is effectively a type of value capture. Planning agreements have been used to support public benefit
from a number of major developments. But SGS Economics & Planning notes that they are not universally
successful:
some local authorities have proved far better than others at negotiating realistic contributions
without inhibiting development;
in other cases, however, developers complain of protracted delays and unrealistic expectations;
and
in still other areas, authorities, perhaps stung by such criticisms, have secured far less than might
reasonably have been expected in developer contributions. (SGS Economics & Planning, 2007,
p. 21)
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300
Section 5.7 also discusses weaknesses with this approach. Overcoming these challenges would require
support from central government, possibly through guidelines, to assist councils in effectively negotiating
planning gain.
What is the potential for value capture in New Zealand?

Tauranga City Council submitted on land value capture that
[g]iven that land values can increase many times over when land is rezoned for urban development this
idea may be truly transformational in terms of the ability to deliver new affordable housing and to
reduce reliance on development contribution funding. (sub. 47, p. 19)
An Auckland Council report on value capture (2013f) undertaken as an action in the Councils Housing Action
Plan assessed the potential for betterment levies in Auckland, and recommended against introducing them.
Using land value comparisons and evidence about the effect of historical rezonings, they estimated that the
90 million m of land that Auckland would rezone as future urban over the next 30 years would increase by
between $3.09 a square metre to $26.35 a square metre, meaning that up to $1.28 billion would be able to
be realised from a betterment levy depending on its rate and the increase in value (Table 10.4).
Table 10.4
Estimates of value capture revenue in Auckland
Land value change
Estimated
net land
value
increase
Projected
Projected
revenue for 5% revenue for 10%
value capture
value capture
Projected
revenue for
30% value
capture
Projected
revenue for
60% value
capture
Low: $3.09 per m
$250m
$13m
$25m
$75m
$150m
Medium: $10.81 per m
$876m
$44m
$88m
$263m
$525m
$2 134m
$107m
$213m
$640m
$1 280m
High: $26.35 per m

Source:
Auckland Council, 2013f.
Despite the potential to raise revenue, the report recommended against introducing a betterment levy
because it concluded that:
a betterment levy is unlikely to increase land supply or accelerate development;
a betterment levy has the risk of increasing house prices as landowners pass on the cost; and
it is administratively difficult to determine the land value change attributable to the rezoning for each
property, which is likely to result in legal challenges.
Grimes and Young (2010) analysed whether property prices increased in value following the announcement
in 2005 of upgrades to the Western Line of Aucklands passenger rail network, including electrification,
double tracking, and upgrades to New Lynn station that involved moving sections of the line underground.
They estimated that house prices adjacent to station rose by 3.5%, and extrapolated that land prices
increased by 8.5%. They estimated a total increase in land value for properties within 9 km of a train station
following the announcements to be from $217 million to $244 million. The total cost of rail improvements
across Auckland was about $2.65 billion, of which only a proportion was for the Western Line.
Would land capture mechanisms increase land supply or accelerate development?

There are two mechanisms land supply and development of land would be encouraged as a result of value
capture.
First, it would discourage land banking by reducing a landowners expectation of future price increases.
Given the costs to holding undeveloped and under-developed land, with a weaker expectation of future
increases a landowner will be encouraged to develop land or sell it to someone who will.
Second, the Council can receive revenue that would allow it to increase its investment in infrastructure
necessary for future land developments. More serviced land creates more options for land developers, and
also reduces a landowners expectations of future price rises. The report from Auckland Council does not
take these effects into account.
Would costs be passed on to landowners?

The Auckland Council report correctly identifies that the cost of the value captured by council would be
shared between the landowner, developer and final purchaser, depending on their relative demand
elasticities:
The tax burden is more likely to be shared among land owners developers and house buyers. The tax
share borne by each party and the effect on property prices will depend on the prevailing market
conditions. This could be demonstrated by using an assumption. If, for example, land owners pass
forward 80% of the VCR [value capture rate] to buyers (as the demand is strong), the house prices are
likely to increase by 0.5% when VCR is at 5% and 5.2% when VCR is at 60% of the land value increase.
However, during housing booms and busts, pure tax effects would be overshadowed by market forces.
(Auckland Council, 2013f, p. 4)
However, the expectation that a value capture mechanism would increase housing prices does not take
account of the opportunity such a mechanism could afford to unlock greater effective land supply through
infrastructure investment. An additional supply of infrastructure-serviced land would not only depress land
prices, but also reduce the ability of landowners to pass on the cost of value capture to buyers. This is
particularly the case where additional funding means the provision of growth-enabling infrastructure can be
more responsive to demand, rather than rationed.
Should a value capture mechanism be ongoing or one-off?

One conceptual problem with ongoing capture mechanisms (such as land value increment taxes) is whether
all increases in land prices are unearned. Conceivably, owners can improve the value of their land through
site works (such as drainage or landscaping).
Potentially more problematic is the treatment of value created through the provision of infrastructure funded
by a landowner/developer, including through development contributions. When development contributions
fund some or all of the cost of infrastructure, the increase in land value that results can no longer be viewed
as unearned.
F10.11
No reasonable argument exists for capturing increases in property values resulting from
infrastructure builds that developers are required to fund through contributions, as the
uplift is not unearned.
A case exists for capturing the value uplift that resulted from community action not financed by
landowners/developers.
There are also significant distributional effects to an ongoing mechanism, where owners lack significant
income streams (eg, many retirees). Chapter 9 discusses existing mechanisms to manage this situation (such
as rates-postponement schemes).
One difficulty with one-off levies is that the market is likely to anticipate future rezoning or infrastructure
provision, so that, when the public action that provides the betterment actually occurs, the immediate
increase in value does not reflect the size of the windfall:
[I]t seems clear that any value capture strategy which relies solely on market valuations of property at the
time of re-zoning is likely to be unworkable, simply because, the market tends to anticipate up-zonings.
We recommend that, again, regardless of the value capture method applied in New Zealand, the value
of development rights should be assessed separately from the market circumstances of any particular
transaction subject to the betterment levy. (SGS Economics & Planning, 2007, p. 30)
The office of the Valuer-General at Land Information New Zealand has confirmed that valuation processes
for rating purposes are intended to provide a market value and, as such, do price in anticipated rezonings.
Comparing models
Table 10.5 compares how different value capture approaches might apply.
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302
Table 10.5
Comparison of value capture approaches

Ongoing land value
increment tax
Effect on
land supply
An ongoing land value increment

tax would encourage landowners
to release land for development,
by significantly reducing their
expectations for future land value
increases.
Local betterment levies
Participation in the market
Locally applied betterment

levies could fund incremental
improvements to land supply,
but would not have a
systematic effect.
An agency participating in the

land market could purchase
and release to developers
large volumes of land. It might
also increase the supply of land
for development by private
landowners by:
reducing their expectations

of future land value
increases; and
developing land so as to
pre-empt the possibility of
purchase by the agency.
Implications
for urban
form
A land value increment tax might

encourage less dense
development by depressing land
prices.
Betterment levies are typically

used to fund major
infrastructure projects that
allow the redevelopment of
existing areas, and might
encourage more dense
redevelopment of built-up
areas such as town centres.
Participation in the market for

land could allow the release of
sites on a scale that would
enable better planned and
denser developments.
Sustainability
The experience in other

countries is that land value
increment taxes are difficult to
sustain over the long term. In the
short term, they can worsen land
shortages as owners hold out in
anticipation that the policy on
land value increment taxes will
be repealed.
Betterment levies are suitable

for large, one-off projects that
are likely to be episodic.
Australian experience shows

that the model where agencies
participate in the market for
land is a sustainable model for
making land available for
development over time.
Value
captured
An ongoing land value increment

tax could be expected to
generate significant revenue. The
amount of value captured would
depend on the level of the tax.
Local betterment levies should

capture some of the localised
value increase while leaving
some for landowners.
The amount of value captured

by participation in the market
will depend on whether:
Conclusion
A land value increment tax is the

most comprehensive and
efficient approach. However, its
history of failure overseas means
that it should only be considered
with bipartisan political
commitment.
Betterment levies are an

attractive way to fund
infrastructure for large, one-off
projects, particularly in urban
redevelopment. However, in
the New Zealand context,
targeted rates (see Chapter 9)
are likely to provide similar
benefits.
the agency is able to

influence or anticipate
zoning changes better than
the market; and
the agency is able to hold

land for sufficient periods
of time so that value can
increase.
A public agency with the ability

to acquire, hold and trade in
land has the potential to
generate significant revenue
that could be used to fund
growth-enabling infrastructure.
Land value increment taxes and betterment levies have chequered histories in New Zealand and other
countries. Given the above recommendation to establish a UDA, its participation in the land market, backed
by powers of compulsory acquisition, would seem to be the best way of allowing the UDA to capture the
value uplift that results from public action such as upzoning.
F10.12
A good case exists for the public to capture unearned land value increases that result
from public action. But land value increment taxes and betterment levies have proved
difficult to sustain in other countries.
F10.13
An Urban Development Authority may be able to capture some portion of unearned

land value increases through participation in the land market.
10.5 Conclusion
Increasing the supply of land for housing is an integral component of addressing housing affordability
concerns. This report outlines a range of changes to reform land use rules, planning processes, and local
incentives that will measurably improve that supply. The scale of the current housing shortage also justifies
more interventionist approaches that will unlock land for large-scale developments to alleviate housing
shortages and housing costs. A UDA could play an important role at the nexus of a number of barriers to
land supply identified in this report (Figure 10.3).
Figure 10.3
How a UDA might address barriers to resolving land supply

supply problems
Initiatives to address barriers

Housing Accords and
(existing, but expiring)
Planning
rules and
processes
Coordination to
enable scale
Urban Development
Authority(ies)
operate here
Infrastructure
funding
Land
assembly
powers (new)
Value capture
approaches
(new)
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304
As outlined in Chapter 1, improving the supply of land for housing is the most important component of
addressing affordability concerns. Yet it is not the only component of a comprehensive solution. This report
has not considered the capacity of the building industry to respond to increased availability of land and
stronger incentives to use it for dwellings, the quality of building regulation, the productivity of the
construction sector, or the cost of building materials. As outlined in the Commissions 2012 report on
Housing affordability, these areas also have a material impact on housing affordability. However, unless land
supply is addressed, any gains in these areas are likely to accrue not to homebuyers but to landowners.
One or more UDAs could play a valuable role in this area as well. By reducing regulatory risk, a UDA can
partner with private sector developers and builders. Doing so would allow them to innovate and
demonstrate the effectiveness of different approaches to building communities, and to grow so they can
operate on the scale required.
Councils and their elected representatives also need to take the lead in persuading their communities of the
benefits of growth. These are difficult conversations. Facilitating growth requires communities to change,
and change is hard. Some people will lose from that change. But the community as a whole, and
New Zealand, will benefit from it. As described in Chapter 2, larger cities provide their residents with
increased amenity and economic opportunities. Councils need to lead better conversations that include their
whole community about how growth is going to be accommodated.
New Zealands fastest-growing cities need to accommodate their rising populations. This means allowing
them to grow out and up, and to become denser. Where councils and infrastructure providers try to tightly
manage where and when that growth occurs (and where it may not occur), they contribute to escalating land
costs. In turn, this encourages owners to withhold land, and forces builders to construct the most expensive
dwellings on those sites that are available. The resulting shortage in housing causes a range of invidious
social and economic harms that hurt the wellbeing of individuals, families, communities and the nation.
This is a vicious cycle that must be addressed by unlocking land supply. No single or simple solution exists. A
number of changes, as outlined in this report, are necessary.
Summary of questions
Chapter 3 Integrated planning
Q3.1
Is there other evidence of the benefits or costs from New Zealands spatial planning
processes that the Commission should be aware of?
Q3.2
How could the longer-term development and infrastructure needs of cities better align
with central governments fiscal cycle?
Q3.3
Are there other functions and activities that should be included in a new legislative
planning avenue for cities?
Q3.4
What processes or mechanisms should be used to ensure that proposals for new landuse regulation in future spatial plan are subject to rigorous and independent scrutiny?
Chapter 4 Supplying and releasing land

Q4.1
Should the public have improved access to property data such as the content of District
Valuation Rolls and property sales data?
Q4.2
What are the merits of statutory controls on subdivision covenants, such as time limits,
restrictions on the subject matter in them, providing councils with powers to override
them, or creating mechanisms to reduce the barriers to extinguishing them without
unanimous consent?
Q4.3
What impact would further narrowing eligibility to make further submissions have on
plan change processes? If eligibility should be narrowed, which parties should be
excluded?
Q4.4
How should eligibility for notification and consultation on site-specific proposed plan
changes be defined? Would the definition used in the HASHA Act or the 2009 RMA
amendments be preferable?
Q4.5
What has been the experience of using independent commissioners to make planning
decisions? Do independent commissioners provide sufficient rigour and impartiality to
justify further limits on appeal avenues? Would there be merit in allowing local
authorities to reject recommendations from independent commissioners?
Chapter 5 Regulations and approval processes

Q5.1
Do other land use rules impose costs above their benefits? What evidence exists of
excess costs?
Q5.2
What would be the costs and benefits of nationally standardising land use rules around
the provision of telecommunications, gas and electricity infrastructure across all District
Plans?
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Q5.3
Does introducing nationally consistent land use rules or specific types of residential
development have other possible benefits that the Commission should consider? What
types of land use rules should be made nationally-consistent? Why?
Q5.4
Would national direction on what residential land-use activities should be permitted in

RMA Plans provide net benefits? What sorts of activities should such a direction focus
on?
Chapter 6 Planning and delivering infrastructure

Q6.1
What are the main advantages and disadvantages of development agreements?
What, if any, barriers exist that unnecessarily limit the uptake of development
agreements?
Q6.2
What approaches do councils use to match infrastructure investment to changing

demand? How successful are they?
Q6.3
How effective are existing initiatives to facilitate standardisation of approaches to asset

management, resource sharing, and dissemination of good practices?
Q6.4
Is the designation process sufficiently responsive to allow major infrastructure

projects that unlock new land for housing?
Should the default duration of designations be changed?
Q6.5
Has the SmartGrowth Property Developers Forum, or similar initiatives in other regions,
been effective in managing tensions between developers and councils?
Q6.6
Is there a case for greater consistency of infrastructure standards? If so, what types of
infrastructure would benefit from greater consistency, and at what level (regional or
central)?
Q6.7
What approaches do Councils take to facilitate coordination with infrastructure

providers?
Would there be benefit in establishing infrastructure forums modelled on the

Auckland Infrastructure and Procurement Forum in other high growth cities?
Chapter 7 Paying for infrastructure

Q7.1
Is it correct that New Zealands current system of rates means that a straight adoption of
tax increment financing schemes used overseas is not suited as a funding tool for
growth-related infrastructure?
Q7.2
Are there any barriers that are preventing developers from challenging development
contributions?
Chapter 8 Governance of transport and water infrastructure

Q8.1
What other issues, if any, relating to the governance of transport infrastructure should
the Commission be aware of?
Q8.2
Are there significant scale economies in the provision of water infrastructure that could
improve the efficiency of provision that are not being realised in New Zealands highgrowth cities?
Q8.3
Would greater integration and clarity within the statutory and legal frameworks for water
supply, wastewater and stormwater assist councils in providing the water infrastructure
necessary to support urban growth?
Q8.4
Does a case exist for introducing access, quality and price regulation for water services
in New Zealand?
Q8.5
How could the governance and funding arrangements for water infrastructure be
improved to encourage providers to be more responsive to demands for new
connections to the water network?
Q8.6
Do the existing checks and balances that apply to Watercare provide sufficient oversight
of Watercares infrastructure growth charges? If not, what alternative measures would be
most appropriate?
Q8.7
Are there other regulatory requirements that apply to councils that should be extended
to include CCOs?
Chapter 9 Shaping local behaviour

Q9.1
Do the procedural requirements of the RMAs Schedule 1 discourage local authorities

from undertaking more inclusive or innovative public engagement on city planning
proposals?
Q9.2
Does scope exist to introduce mechanisms such as the Brisbane neighbourhood plans
into the New Zealand planning and development system? If so, how would it be
implemented?
Q9.3
Would there be merit in a National Policy Statement relating to the provision of

adequate land for housing? What would be the costs and benefits of such a statement?
Q9.4
Would there be merit in expanding existing powers in the RMA to enable Ministers to
direct changes to District Plans and Regional Policy Statements that provide insufficient
development capacity to meet population growth? What would be the costs, benefits
and implications of such a move?
Q9.5
What reason is there to think that the variance around assessed land values is different
to assessed capital values?
Q9.6
What are the costs and barriers for a council in transferring from a rating system based
on capital value to one based on land value?
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Q9.7
Is there merit in providing councils with the ability to levy special rates on vacant
properties an idle land tax?
Chapter 10 Planning and funding our future

Q10.1
What are the important design features of an Urban Development Authority? What are
the risks with this approach, and how can they be managed?
Findings and recommendations

The full set of findings and recommendations from the report are below.
Chapter 2 Cities, growth, and land for housing

Findings
F2.1
The optimal city size from the perspective of the nation may be different from the
perspective of local residents.
F2.2
Specific planning or infrastructure policies have differing effects on the ability of cities to
grow and use land efficiently. Some policies may counteract or offset others. Ensuring
that land use policies and transport infrastructure investments are aligned is particularly
important for cities such as Auckland, where geography adds further constraints to
growth.
F2.3
New Zealands housing market is only moderately responsive to changes in prices,

meaning that an increase in demand for housing will lead to a proportionately larger
increase in house prices than in new house construction.
F2.4
There are longstanding concerns about the ability of New Zealands planning systems
to respond to the need for new housing, and about the extent of constraints placed on
development.
F2.5
The idea that urban design can ameliorate social problems is longstanding, and
continues to be promoted through initiatives such as Special Housing Areas.
F2.6
Proponents of good urban design articulate the consequent benefits well, but appear to
take much less account of the costs of individual design requirements or their
aggregate effects.
F2.7
The public have always shown a strong interest in planning matters. Over time,
successive planning frameworks have included more formal rights for the public to be
consulted and/or object to land use rules and proposals.
F2.8
Land values in major New Zealand cities and high-growth areas increased significantly in
the middle of the last decade, both in nominal terms and as a share of total property
values.
F2.9
High land prices encourage the production of larger and more expensive housing. In
New Zealand, the average size of new dwellings has increased by more than 50% since
1989.
F2.10
New Zealand cities have differing intensification profiles. Wellington and Hamilton have
seen significant intensification close to the city centre. In other cities, the biggest
contribution to intensification has occurred in outlying suburbs.
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F2.11
No consistently collected or comparable data is available on the stringency of land use

regulation in New Zealand.
F2.12
A survey of fast-growing New Zealand councils found universally restrictive land use
rules, but considerable variation in the overall stringency of land use regulation. This
variation is due in large part to:
differing levels of influence over planning by the courts, regional councils and
community groups; and
differences in the time taken to get approvals for development.
F2.13
Stringent land use regulations have a disproportionate impact on the less well-off and
put pressure on public finances.
F2.14
Housing makes up a significant share of many New Zealanders wealth. High housing
prices have implications for the ability of some groups to accumulate wealth and for the
distribution of wealth across the community.
F2.15
Restrictive land use regulations limit the ability of people to seek better employment
opportunities in cities, are a barrier to potential productivity gains, and may create risks
to macroeconomic stability.
Chapter 3 Integrated planning

Findings
F3.1
A number of parties expressed concerns about the interaction of the three main
planning Acts, and their collective impact on the ability of local authorities to coordinate
land use, transport and infrastructure decisions.
F3.2
Most of the territorial authorities that are the focus of this inquiry have spatial plans, or
are preparing them.
F3.3
Inquiry participants report a number of benefits from New Zealands spatial planning
processes, including greater intra-regional cooperation and understanding, more
efficient infrastructure use and investment, and a better ability to respond to crises or
new policy initiatives.
F3.4
Most of New Zealands spatial plans impose, or intend to impose, urban limits. The
limits vary in terms of their permanence and their ability to be adjusted in response to
market developments.
F3.5
Infill and intensification targets that are set too rigidly or too far ahead of consumer
preferences or market viability can reduce the supply of development capacity.
F3.6
The New South Wales Urban Feasibility Model is a leading practice tool that can be
used to develop and test commercially viable brownfield land-use rules.
F3.7
A number of local authorities have goals in their spatial and RMA plans to protect highclass agricultural land from residential development.
F3.8
Tensions between the growth of cities and agricultural activities are inevitable, since
many cities in New Zealand are located near land that is, or has been, used for
agricultural purposes.
F3.9
The expansion of cities is not the largest threat to elite or high-class productive land.
F3.10
Zoning practices that require large minimum lot sizes in rural areas may not be the best
way of protecting life-supporting soils and are unlikely to encourage the most efficient
use of land for housing.
F3.11
Land, like any other resource, will tend to migrate towards its highest value use. Prices
indicate the highest and best use of a particular section of land. In some cases, the
highest value use will be residential housing; in others, it will be agriculture or
horticulture.
F3.12
Duplicative statutory consultation requirements make it time-consuming and costly for

local authorities to translate spatial plans into RMA regulatory plans.
F3.13
Strengthening the recognition in the RMA of plans prepared under other statutes would
be unlikely to significant speed up the translation of spatial plans into District Plans.
F3.14
Removing or relaxing RMA consultation and analytical requirements to enable faster

translation of spatial plans into District Plans would increase the risk of poor-quality
regulation.
F3.15
The best opportunity to integrate spatial planning and land-use regulation is to create a
new, legislative avenue for larger cities. Such an avenue would allow a local authority to
develop a plan that combined:
30-year infrastructure strategies;
longer-term thinking about the growth of the city; and
the development of associated land-use rules.
F3.16
Large numbers of objectives in spatial plans, and goals that have no strong relation to
the use of or demand for land, are likely to complicate the implementation of these
plans and the development of efficient regulation.
F3.17
The timely and adequate provision of social services (such as education and health)
matters for the growth of cities. Central government is responsible for planning for and
funding these services. However, it has played a limited role in developing
New Zealands current spatial plans.
F3.18
One significant challenge in moving to an integrated planning avenue for larger urban
centres is reconciling a citys longer-term development and infrastructure needs with
much shorter central government planning and fiscal cycles.
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F3.19
Central government could bring its regulatory expertise and capability to bear so as to
properly test proposals for new land-use rules and regulations in future spatial plans.
Possible options include peer review by the Treasury or the establishment of an
Independent Hearings Panel.
Recommendations
R3.1
Urban local authorities that wish to set design infill/intensification targets should ensure
that their District Plans provide sufficient commercially viable development capacity.
R3.2
The Ministry for the Environment should explore the potential to develop an Urban
Feasibility Model that New Zealand local authorities can use.
R3.3
High-growth territorial authorities should review their zoning rules for rural land, to
ensure they provide the right balance of promoting efficient use of land for housing and
minimising reverse sensitivity risks.
R3.4
Large land price differentials between different types of zones, such as those observed
in Auckland, should be a trigger for local authorities to review the adequacy of their land
supplies and zoning decisions.
R3.5
A new legislative avenue should be designed to focus spatial plans on activities that:
are of high importance to the functioning of cities and the provision of development
capacity for housing (eg, land supply, infrastructure provision, transport services);
relate closely to the use of land or space and the management of negative
externalities; and
R3.6
The new planning avenue should be voluntary to allow local authorities to choose the
statutory planning mechanisms that best suit their circumstances.
R3.7
Future plans prepared under the new legislative avenue should be developed in
partnership with the full set of central government actors whose services matter for the
functioning of cities. Given the fiscal implications of greater central government
involvement in spatial planning, both Cabinet and the relevant local authority should
approve such plans.
R3.8
The new legislative planning avenue should include processes to encourage robust
regulatory analysis and development, as section 32 of the Resource Management Act is
designed to do.
Chapter 4 Supplying and releasing land

Findings
F4.1
Many urban local authorities have goals for the supply of land to meet future residential
growth, although the form and strength of the supply goals vary between councils.
F4.2
Only Auckland Council and the SmartGrowth partnership have quantified land supply
targets.
F4.3
Local authorities provide only limited public reporting on their performance against
their land supply targets.
F4.4
The readiness of land matters for the efficiency of the housing supply chain. Large
amounts of un-zoned land may put little competitive pressure on land and house prices,
because of the time it takes to rezone land for residential use. Zoned and serviced land
will provide more pressure, as this types of land can be developed more quickly.
F4.5
A need exists for better and more regular data on dwelling production, especially
housing additions and demolitions. Existing information provided through building
consents is of poor quality.
F4.6
Covenants established in new subdivisions (building schemes) are increasingly common

and impose ever more detailed restrictions on purchasers.
F4.7
Covenants established in building schemes can reduce the supply of land for housing
now and in the future, and increase the cost of constructing dwellings.
F4.8
With the exception of Auckland and Christchurch, there does not seem to have been a
stocktake of public land holdings in high-growth cities to identify land that could be
released for residential development.
F4.9
Opportunities may exist to use Crown and local authority land holdings in other cities to
F4.10
High-growth councils take longer, on average, than other local authorities to make plan
changes operative. Consultation obligations and appeals are significant drivers of
longer timeframes for plan changes.
F4.11
Reforms that limit the ability of directly affected parties to make further submissions on
proposed plan changes would be undesirable.
F4.12
Giving local authorities greater flexibility over notifying site-specific plan change
proposals could create opportunities for faster rezoning processes, while protecting the
ability of those directly affected to be heard.
F4.13
Both engagement with affected parties on proposed plan changes ahead of their
notification and circulation of draft plan changes for comment are leading practices that
may help to reduce the incidence of appeals.
Recommendations
R4.1
High-growth local authorities should express their land supply targets in terms of zoned
and serviced land and report publicly on their performance.
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R4.2
Local authorities should monitor and report on dwelling completions and net changes in
the dwelling stock, relative to expected and actual population and household growth.
R4.3
The Ministry of Business, Innovation and Employment, Statistics New Zealand and
territorial local authorities should work together to improve the quality of official
statistics available from the building consent form as a priority.
R4.4
The Ministry of Business, Innovation and Employment, in conjunction with relevant local
authorities, should inventory public land holdings in all high-growth cities to identify
sites that could be used for housing.
R4.5
Local authorities should set policies for the publishing of and consulting on draft plan
reviews or plan changes of interest to the wider community ahead of notification, unless
compelling reasons exist for not doing so.
R4.6
The Ministry of Business, Innovation and Employment and the Ministry for the
Environment should, once the work of the Auckland and Christchurch Independent
Hearings Panels (IHPs) is complete, evaluate the IHP processes, with a view to deciding
whether IHPs should become a permanent feature of the planning system.
Chapter 5 Regulations and approval processes

Findings
F5.1
Balcony or private open space requirements for apartments create costs that appear to
outweigh any likely benefits.
F5.2
Controls on apartment sizes were introduced in New Zealand in part because of

concerns about the adequacy of ventilation, natural light and internal noise insulation.
These concerns are best dealt with through targeted regulation and through
amendments to the Building Code.
F5.3
Minimum parking requirements create land use inefficiencies and higher construction
costs, contributing to increased housing costs. In addition, they represent an effective
subsidy to car users, encouraging excessive use.
F5.4
Building height limits contribute to housing shortages and higher house prices, and
force cities to move outwards, increasing transport costs for some members of the
community. They weigh against objectives of increasing urban density and using city
land more efficiently. Although building height limits can play a role in managing local
externalities from development, they also create costs that are felt across a city.
F5.5
Multiple and conflicting objectives in RMA plans reduce the ability of those plans to
provide sufficient land and development capacity.
F5.6
Inadequate underpinning analysis for District Plan rules and provisions is a key source of
unnecessary regulatory costs for developers.
F5.7
District Plan provisions which impose controls on the internal design and construction of
building that are more stringent than standards set under the Building Act may be
unlawful.
F5.8
Auckland Councils commissioning of detailed benefit-cost studies for particular land

use rules is a good example of the depth and rigour of analysis that should accompany
the introduction of new rules.
F5.9
Strongly diverging views exist about the appropriate weighting given in the RMA to
urban growth outcomes and housing relative to other outcomes.
F5.10
Arrangements to bring all parts of council with a potential impact on a development

project together and provide a one-stop shop for developers can help reduce
transaction costs and unnecessary delays.
F5.11
Opportunities exist in New Zealand to reduce costs and delays by making greater use
of electronic planning tools.
F5.12
The Commission is not convinced that the benefits of nationally consistent land use
rules for specific types of residential development outweigh the costs.
F5.13
Little information is available on the proportion of land-use activities that are

permitted under existing District Plans. However, the experience of the Queenstown
Lakes District Plan review suggests that scope exists for further liberalisation of
residential land-use requirements in current RMA Plans.
F5.14
Inclusionary housing policies are sometimes characterised as compensation for the

negative impacts on the poor of the planning system. If the planning system is the
proximate cause of declining affordability, planning system reform should be the
priority response.
F5.15
Even with reform, some planning systems may continue to impose a degree of
restriction on the supply of housing or struggle to resolve longstanding supply deficits
quickly. Inclusionary housing policies may therefore be a second best response to
housing affordability issues in these areas.
F5.16
Inclusionary housing policies that require negotiations between councils and

developers, or high degrees of discretion on the part of local authorities, are likely to
create uncertainty and delays.
F5.17
Incentive-based inclusionary housing policies are more likely to fit with New Zealands
zone-based planning system and (relatively) strong property rights.
F5.18
Local authority polices on inclusionary housing are likely to struggle without a range of
other supporting polices, most of which require support from central government.
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316
Recommendations
R5.1
Urban territorial authorities should remove District Plan balcony / private open space
requirements for apartments.
R5.2
Once the Ministry of Business, Innovation and Employment has completed planned work
on updating Building Code rules and guidance related to air quality, lighting, acoustics
and access in multi-unit dwellings, local authorities should review minimum apartment
size rules in their District Plans, with a view to removing them.
R5.3
Urban territorial authorities should remove District Plan minimum parking requirements,
and make more use of traffic demand management techniques.
R5.4
Local authorities should undertake robust cost-benefit analyses before considering the
introduction of building height limits, and should lift current limits where it cannot be
demonstrated that the benefits outweigh the costs.
R5.5
Local authorities should review District Plan controls on the design and construction of
buildings or dwellings that exceed standards set under the Building Act, with a view to
removing them.
R5.6
The Government should introduce amendments to the RMA to clarify the role and
importance of housing and urban environments.
R5.7
In reviewing their District Plans, local authorities should move more residential land-use
activities into permitted or restricted discretionary status.
Chapter 6 Planning and delivering infrastructure

Findings
F6.1
Infrastructure costs account for a significant share of the cost of new dwellings. Costs
are location-specific and consist primarily of on-site infrastructure construction costs,
development contributions and connection fees for private utilities.
F6.2
Most inquiry participants suggested that higher-density urban developments are less
costly to service with infrastructure, particularly when existing infrastructure assets have
not yet reached capacity. International research examining the relationship between
urban form and infrastructure costs generally supports this proposition.
F6.3
Councils are required to undertake a relatively rigorous infrastructure planning

processes a reflection of the fact that councils are asset-intensive organisations.
F6.4
Councils tightly control the supply of infrastructure to support urban growth. This is a
prudent approach from the perspective of managing costs and risks. However, it can
constrain the supply of land for housing. In turn, this can contribute to higher land prices
by reducing competition among developers and reinforcing expectations among
investors of a scarce supply of land for housing.
F6.5
Development agreements enable developers to take responsibility for building major

infrastructure. This shift has the potential to generate a swifter supply of infrastructure at
a lower cost.
F6.6
Innovative approaches to infrastructure construction that lower upfront costs and allow
services to be scaled up as demand increases can help to overcome the difficulties of
investing in infrastructure to support future growth. The staged construction
approached used by Selwyn District Council is a good example of this leading practice.
F6.7
Improving the supply of infrastructure for housing is not just about rolling out new
infrastructure. Effective use of existing assets is also an important part of the equation.
F6.8
Councils can unlock land supply by enabling growth in areas where there is spare
capacity within existing infrastructure networks. This leading practice requires councils
to establish a good understanding of existing infrastructure capacity along with
appropriate planning rules that allow intensification to occur in areas where capacity
exists.
F6.9
Forecasts in the Long-Term Plans of high-growth councils point toward a growing and
potentially under-funded requirement for infrastructure renewals. Effectively managing
ageing assets and funding the renewal of infrastructure are likely to be major challenges
for councils in the coming years.
F6.10
Effective asset management can enable councils to make better use of existing assets,
facilitate optimal decisions about the location of growth, set well-informed infrastructure
standards, and improve the coordination of infrastructure delivery among different
providers.
F6.11
Wellington City Councils approach to asset management is a leading practice. Benefits

of the approach include enabling the council to make more effective use of existing
infrastructure, better coordination and timing of maintenance and replacement work,
and the ability to take an evidence-based approach to spatial planning.
F6.12
User charges are an effective approach to demand management that can enable
councils to make better use of existing assets. This can contribute to an improved
supply of land if it increases the number of dwellings that existing infrastructure assets
can support. Also, it has potential to reduce the operating expenditure of councils and
to delay or avoid capital investments in new infrastructure.
F6.13
A number of good practices enable consistency in council infrastructure standards set

by councils. These include the widespread use of the New Zealand Standard Land
Development and Sub-Division Infrastructure and varying approaches to regional
consistency.
Recommendations
R6.1
When councils refer to the supply of land for housing, they should be clear about the
readiness of land for building (eg, un-zoned but planned-for future zoning; zoned; zoned
and serviced; zoned, serviced and consented).
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318
R6.2
Councils should identify areas where there is existing infrastructure capacity and ensure
that planning rules do not prevent intensification from occurring in these areas.
R6.3

information systems. This should be supported by recruiting and developing staff with
the skills and expertise needed to make effective use of these systems, and ensuring
that the information from asset management systems is integrated into decision-making
processes.
R6.4
Councils should pursue opportunities to make more efficient use of existing

infrastructure assets including through greater use of user charges where this can reduce
demands on infrastructure.
R6.5
Government should adopt the Local Government Infrastructure Advisory Groups

recommendation to amend the Land Transport Management Act to allow pricing on
existing roads where there is a business case that enables effective network
optimisation.
R6.6
Councils asset management systems should feed into decision making about optimal
infrastructure standards. The data used to inform standard-setting should be shared
openly with the development community.
R6.7
If councils determine that a good case to change infrastructure standards exists, then
developments that already have consent should be exempt from the change.
Alternatively, developers should be compensated for any additional costs incurred as a
result of the change.
Chapter 7 Paying for infrastructure

Findings
F7.1
Debt is an important source of finance for urban infrastructure in high-growth areas. It

enables councils to deliver infrastructure when it is most needed and for infrastructure
costs to be spread over the life of the asset. This means that those who benefit from the
infrastructure contribute to paying for it.
F7.2
Recent assessments have not identified serious concerns regarding local authorities use
of debt.
F7.3
Tauranga City Council provides an opportunity for the development community to

review proposed development contributions, and will consider feedback on areas for
improvement. Inquiry participants have identified this approach as a leading practice.
F7.4
Considerable scope exists for councils to increase their use of targeted rates in order to
recoup the costs of growth-enabling infrastructure over a longer timeframe.
Recommendations
R7.1
Evaluation of the financial prudence and reporting regulations should monitor how the
regulations affect councils ability to provide infrastructure to support growth and review
whether 15% is the most appropriate debt-servicing ratio for high-growth councils.
R7.2
Councils should include information in their development contributions policy about the
relationship between dwelling floor area and the cost of providing infrastructure
services. If smaller dwellings impose lower costs on the infrastructure network, this
should be reflected in lower charges.
R7.3
The Local Government Act should be amended to make clear that developers may
formally request that councils construct growth-enabling infrastructure, to be repaid
through targeted rates on the properties that benefit from the infrastructure
connections, and obliging Councils to consider such requests.
Chapter 8 Governance of transport and water infrastructure

Findings
F8.1
The Government Policy Statement on Land Transport includes relatively weak reference
to land supply for housing. A stronger focus on how transport infrastructure can support
land supply for housing would change NZTAs investment priorities and might help to
free up land supply in high-growth cities. However, shifting the priorities for land
transport funding could have implications for existing priorities.
F8.2
The three waters have been identified as a relatively poor performing infrastructure
class. In comparison with other jurisdictions, management of water assets in
New Zealand is very fragmented. Strengthening commercial disciplines would provide
greater imperative for weaknesses in the water sectors regulatory and institutional
framework to be addressed, and may entail economic regulation of water services.
F8.3
The primary accountability documents for Watercare and Auckland Transport (the
Statement of Intent) do not give effect to the objectives in the Auckland Plan to increase
the citys supply of new dwellings.
Recommendations
R8.1
Auckland Transport and Watercare should amend their SOIs so that they are aligned
with the Auckland Plan and its target for new dwellings. The SOIs should include
performance measures relating to the efficient rollout of new infrastructure to support an
increased supply of new dwellings.
R8.2
Auckland Transport and Watercare should include performance measures in their SOIs
that encourage greater coordination between CCOs and with Auckland Council,
building on Auckland Councils current review of CCOs.
R8.3
Watercare should change their approach to calculating infrastructure growth charges to

better reflect the underlying economic costs of supply in different locations and for
different types of dwelling.
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320
R8.4
The requirement to consider development agreements that applies to councils should

also apply to CCOs.
Chapter 9 Shaping local behaviour

Findings
F9.1
Groups that have high home ownership rates have higher rates of participation in local
government elections.
F9.2
Restricted housing supply will tend to inflate the value of existing homes.
F9.3
Existing homeowners have an incentive to be risk-averse in opposing developments

that could affect the amenity and value of their home.
F9.4
Existing homeowners have an incentive to oppose development that involves council

expenditure on infrastructure that does not benefit them but will be recovered through
general rates.
F9.5
Cities that are subject to geographic constraints to development (eg, near to a large
body of water) show less supply responsiveness to housing demand, both because of
the geographic constraints and because these constraints encourage higher land prices,
strengthening the incentive for existing owners to support anti-development
regulations. This is particularly true in larger and faster-growing cities.
F9.6
The influence of homeowners in local government elections and consultation processes

promotes local regulatory and investment decisions that have the effect of reducing
housing supply.
F9.7
Tools such as statistically robust and representative surveys can help to offset the
tendency of planning engagement processes to be skewed towards particular segments
of the community.
F9.8
Local land regulation can have consequences of national importance. If a faster release
of land is to be achieved, the balance between local and national involvement in the
planning and development system may need to shift.
F9.9
High-growth councils tend to see accommodating population growth or new housing

development as a net cost. The construction of new dwellings increases a councils
ability to fund expenditure from rating those properties over time, but overall the direct
financial incentives on councils to accommodate growth are weak.
F9.10
Evidence so far from the UKs New Homes Bonus Scheme does not support introducing
central government payments to councils for new dwelling construction.
F9.11
Auckland has a large number of owners of bare land suitable for subdivision and the
construction of dwellings. No evidence exists that a small number of owners have a
dominant position in the Auckland market.
F9.12
Land banking is occurring in many urban areas of New Zealand. Land banking need not
require a dominant market position, only that the expected increases in land value are
greater than the holding costs of land.
F9.13
Land banking is a symptom, rather than a primary cause, of land supply constraints. In
New Zealand those constraints are the result of local regulatory and investment
decisions.
F9.14
The holding costs of land, including rates and financing, are low relative to Aucklands
current rapidly inflating land values.
F9.15
The use of capital value rating systems makes it marginally less expensive to carry
undeveloped and underdeveloped land. The use of land value rating systems would
encourage land flowing to its highest value uses, including more and denser housing.
F9.16
Rating based on land valuation appears to be a better proxy for ability to pay than
rating based on capital valuation.
F9.17
Central government rates rebates, local government rates-postponement schemes and

private reverse-equity loans provide mechanisms to assist asset rich but cash poor
ratepayers to pay rates.
F9.18
The distributional effects of a systematic incorrect valuation of land on the rating burden
may be greater under a capital value rating system than a land value rating system.
F9.19
Because the benefits of desirable council services (such as parks) are capitalised into
land value, owners of undeveloped land also benefit from these services. As a result,
land value rating provides a better match for benefits received than capital value rating.
F9.20
A good case appears to exist for setting general rates on the basis of land value rather
than capital value, to encourage the development and efficient use of land. Arguments
used to prefer capital value rating are not strong.
F9.21
The rating exemption on core Crown land does not appear to have a principled
justification.
F9.22
Removing the rating exemption on land owned by the core Crown would encourage the
government to undertake more active monitoring and management of its land holdings,
and to release un-needed land suitable for residential development.
Recommendations
R9.1
The Treasury, in consultation with the Department of Internal Affairs, should investigate
removing the rating exemption on land owned by the core Crown, including on land
used for health and education purposes.
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Chapter 10 Planning and funding our future

Findings
F10.1
Large-scale developments offer a number of benefits, including the ability to generate

economies of scale that can drive down infrastructure and construction costs. Larger
developments are also important to attract overseas developers who may be better
able to innovate and operate at scale.
F10.2
There is a coordination failure preventing many large residential developments.

Amalgamating land is a challenge in both greenfield and brownfield sites, particularly in
Auckland.
F10.3
Compulsory acquisition powers can facilitate a negotiated sale, and often do not need
to be exercised to be effective.
F10.4
There are a range of compulsory acquisition approaches used by authorities around the
world to assemble greenfield and brownfield land for development.
F10.5
The existence of an agency with compulsory acquisition powers can encourage

landowners to develop their land or to sell it to those who will.
F10.6
Any proposal for compulsory acquisition of Mori land would face sensitive Treaty
issues. Any regime to compulsorily acquire land for housing developments needs to
recognise both the associated risks and positive partnership opportunities.
F10.7
Circumstances exist in which the economic and societal harms that result from a
housing shortage should be considered sufficient to justify the compulsory acquisition
of land for the construction of housing.
F10.8
Urban development authorities can play an important role in de-risking development

and bringing land to market.
F10.9
No territorial authority within the scope of this inquiry currently has an urban
development agency in place. However, the Auckland and Wellington City Councils are
actively considering establishing such agencies.
F10.10
It is justifiable for the public to capture some of the increase in private land value that is
created by public actions.
F10.11
No reasonable argument exists for capturing increases in property values resulting from
infrastructure builds that developers are required to fund through contributions, as the
uplift is not unearned.
F10.12
A good case exists for the public to capture unearned land value increases that result
from public action. But land value increment taxes and betterment levies have proved
difficult to sustain in other countries.
F10.13
An Urban Development Authority may be able to capture some portion of unearned

land value increases through participation in the land market.
Recommendations
R10.1
The Treasury should investigate the possibility of providing an exemption from the
foreign investment screening regime for developers purchasing land, providing the land
is developed into housing and resold within an acceptable timeframe.
R10.2
There is a place for a UDA to lead and coordinate residential development at scale in
both greenfield and brownfield settings, working in partnership with private sector
developers. Legislation would be required to establish and give powers (such as
compulsory acquisition) to one or more UDCs in New Zealand.
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324
Appendix A Public consultation

Submissions
INDIVIDUAL OR ORGANISATION
SUBMISSION NUMBER
A L Christensen
007
Allison Tindale
008
Auckland 2040
028
Auckland Council
071
Auckland District Council of Social Services
022
Auckland Transport
068
046
Bluehaven Holdings Limited
042
BusinessNZ
016
Canterbury Earthquake Recovery Authority
061
Carrus Corporation Limited
010
Chorus
072
Commercial and Industrial Consultants Ltd
067
Community Housing Aotearoa
034
Construction Strategy Group
013
Dale Smith
031
Development Advisory Services
075
Donald Ellis
044
Environment Canterbury
020
Evan Keating
035
Federated Farmers of New Zealand
051
Foodstuffs
050
Future Proof
039
Glenn Broadbent
058
Glenn Metcalf
066
Greater Christchurch Urban Development Strategy
018
038
070
Hill Young Cooper
065
Horticulture New Zealand
064
Hughes Developments Limited
043
Hutt City Council
017
Insurance Council of New Zealand
009
IPENZ Engineers New Zealand
019
Jenny Campbell
006
054
Mike Greer Homes Ltd
048
New Zealand Council for Infrastructure Development
057
New Zealand Housing Foundation
069
New Zealand Institute of Surveyors
074
New Zealand Planning Institute
052
New Zealand Property Investors Federation
062
073
049
015
Palmerston North City Council
026
Pam Johnston
060
Peter McDermott
014
Phil Hayward
041
Porirua City Council
024
Property Council New Zealand
033
056
Ralph Broad
003
Registered Master Builders Association of New Zealand

Incorporated
Retirement Villages Association
023
005
Sam Price
004
045
SmartGrowth
027
Stuart Kinnear
029
Tainui Group Holdings Limited
053
Tasman District Council
025
047
Te Rnanga o Ngi Tahu
063
Te Tumu Landowners Group
040
Vanessa Scott
037
Vector Limited
011
Vincent Mullins
055
012
Waikato Environment Centre
059
032
Water New Zealand
030
021
036
Wilson Penman
001
Engagement meetings
INDIVIDUAL OR ORGANISATION
Absolute Energy Limited
Arthur Grimes
Auckland Council
Auckland Transport
Bill Mitchelmore
Boffa Miskell
Brockie Renovations Limited
Bruce Kohn Communications Limited
Canterbury Earthquake Recovery Authority
Ching Contracting
Chorus Limited
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326
Clark Fortune McDonald & Associates

Cranleigh
Davis Ogilvie and Partners Limited
Department of Internal Affairs
Environment Canterbury
Erik van der Wel
Fletcher Building
G.J. Gardner Homes (Nelson)
Golder Associates
Greater Christchurch Urban Development Strategy
Heritage New Zealand
Hill Young Cooper
Hobsonville Land Company Limited
Home Living Solutions
Housing New Zealand Corporation
ITM Building Centres
Jennian Homes Nelson Bays
John Dare
Key Properties Limited
Land Dimensions Limited
Land Information New Zealand
Listel Subdivisions Limited
Local Government New Zealand Metro Meeting
Malcolm Macdonald
Martin Jenkins
McConnell Property
Mike Greer Homes Limited
Millbrook Resort Queenstown
Ministry for the Environment
Ministry of Business, Innovation and Employment
Ministry of Transport
Nelson City Council
Nelson Tasman Chamber of Commerce
Nelson Tasman Housing Trust
New Zealand Housing Foundation
New Zealand Planning Institute
New Zealand Society of Local Government Managers
New Zealand Treasury
Ockham Residential
Parliamentary Commissioner for the Environment
Projects and Ventures Limited
Property Council New Zealand
Property Council New Zealand Bay of Plenty
Queenstown Lakes Community Housing Trust

Reserve Bank of New Zealand
Ryman Healthcare
Stonewood Homes Nelson
Shotover Country
SmartGrowth
Spraggs Group Limited
Tainui Group Holdings
Tama Potaka
Tasman District Council
The Neil Group Limited
The New Zealand Initiative
Todd Property Group
University of Auckland School of Architecture and Planning
Urban Economics
Vector Limited
Waikato Regional Council
Waipa District Council
Wakat Incorporation
Watercare
Water New Zealand
Wellington Electricity
Wellington Water
Woodlot Properties
Australia
Brisbane City Council
City of Melbourne
Department of Planning & Environment (New South Wales)
Department of State Development, Infrastructure and Planning (Queensland)
Economic Development (Queensland)
Housing Industry Association
Metropolitan Planning Authority (Victoria)
National Housing Supply Council (New South Wales)
Professor Judith Yates (The University of Sydney)
Professor Nicole Gurran (The University of Sydney)
Property Council of Australia (New South Wales)
Property Council of Australia (Queensland)
Property Council of Australia (Victoria)
Reserve Bank of Australia
Urban Grown New South Wales
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328
UK study tour
Participated in a study delegation to the United Kingdom (London and Manchester): Nation building
infrastructure and urban development (organised by the New Zealand Council of Infrastructure
Development, and UK Trade and Investment). (10 -13 November 2014).
Seminars
University of Otago Sustainable Urban Transport
University of Otago Urban Health and Sustainability: Affordable Housing
Appendix B Measuring density
Appendix B Measuring density

Density is an important concept in urban planning, as it captures the extent to which a city is making the
fullest use of its available land. However, the various approaches to measuring urban population density lead
to different measures. The most commonly used method estimates average density with the following
formula:
Average Density =
Population
Urban Area
This method can lead to counter-intuitive results. According to the Demographias World Urban Areas
report (2015), Melbournes density is 1 500 people/km2 while Christchurch has a density of 2 000 people/km2
and Auckland, 2 400 people/km2 (Demographia, 2015). These results stem largely from the fact that
Melbournes urban area consists of many peripheral suburbs that are lowly populated.
An alternative approach is to measure population-weighted density. This method weights specific regions in
the urban area on their population level. As a result, it reflects the density of the neighbourhood in which the
citys average resident lives. Its application can be seen in the following example. Consider a city made up of
three areas, each 10 hectares in size. The three areas contain 50, 50 and 200 people. Under average density
measures, density = 300/30= 10 people/hectare. This hides the fact that two-thirds of the population lives in
a region with a density of 20 people/hectare. Under population-weighted density measures, density = 15
people/hectare, a better reflection of true residential intensification (Table 10.6).
Table 10.6
An example of population-weighted density
Area
Population
Population weight
Density of area
(people per ha)
Population
weighted density
A 10ha
50
50/300 = 16.6%
0.166x5 = 0.83
B 10ha
50
50/300 = 16.6%
0.166x5 = 0.83
C 10ha
200
200/300 = 66.6%
20
0.666x20 = 13.3
Total 30ha
300
100%
10
Approx. 15
Nunns (2014) used a population-weighted density measure to assess major Australasian cities (Table 10.7).
Table 10.7
Population-weighted density in New Zealand and Australian cities
Year
City
Urban pop. (m)
Urbanised area
(ha)
Average density
Populationweighted density
2013
Auckland
1.31m
48 642
27.0
43.1
2013
Wellington
0.40m
18 864
21.3
37.8
2013
Christchurch
0.37m
16 967
21.6
26.9
2011
Sydney
3.93m
104 137
37.8
76.3
2011
Melbourne
3.76m
136 879
27.5
45.0
2011
Brisbane
1.87m
85 319
21.9
34.2
2011
Perth
1.62m
70 798
22.9
29.8
2011
Adelaide
1.17m
50 640
23.1
29.4
Source:
Nunns, 2014.
Another way to assess the intensity of cities is to measure the density of housing (eg, by measuring the
number of dwellings in each hectare or square kilometre). This method provides an insight into how
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330
efficiently land is being used in cities. Also, it avoids the pitfalls of population-based indicators, which may
misinterpret overcrowding in existing dwellings as a housing supply response.
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About this inquiry ................................................................................................................ 16

Cities, growth, and land for housing.................................................................................... 26

Integrated planning ............................................................................................................. 63

Supplying and releasing land ............................................................................................... 88

Regulations and approval processes .................................................................................. 116

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Introduction ............................................................................................................................... 116

Planning and delivering infrastructure ............................................................................... 146

Paying for infrastructure .................................................................................................... 179

Governance of transport and water infrastructure ............................................................ 202

Shaping local behaviour..................................................................................................... 227

Planning and funding our future ........................................................................................ 270

Summary of questions ................................................................................................................ 305

About the draft report

Territorial authorities that the Commission studied .................................................................... 22

Nominal median land values ........................................................................................................... 3

DRAFT | Using land for housing

About the draft report

Why this inquiry is important

Strong population growth but housing supply struggling to keep pace

Unlocking land supply a critical first step

DRAFT | Using land for housing

Substantial benefits are on offer

Cities, growth and land for housing

the constraints of local geography;

Nominal median land values

Nominal median land prices ($)

Queenstown Lakes District

Productivity Commission analysis of Quotable Value data.

DRAFT | Using land for housing

The planning system can work better

Regulatory framework for the planning and development system

strategies for supplying and developing land; and

regulation and approval processes.

Strategies for supplying and developing land

DRAFT | Using land for housing

Regulation and approval processes

The costs of regulation outweigh the benefits

Getting infrastructure in place

DRAFT | Using land for housing